Studiu Agricultura Ecologica_eng

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ORGANIC AGRICULTURE IN MOLDOVA:

LOCAL AND REGIONAL PERSPECTIVES

2012

FinAsist Consulting SRL


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2Chapter: Contents

Organic agriculture in Moldova: local and regional perspectives

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Disclaimer

This report was elaborated by Finasist Consulting Ltd for Moldovan Investment and Export

Promotion Organisation (MIEPO) in October-November 2012.

Integral or partial use of this report shell be authorized by MIEPO and must contain references

both to MIEPO and Finasist Consulting Ltd.

Chiinu 2012

The conclusions and judgments contained in this report should not be attributed to, and do not

necessarily represent the views of, IFC or its Board of Directors or the World Bank or its

Executive Directors, or the countries they represent. IFC and the World Bank do not

guarantee the accuracy of the data in this publication and accept no responsibility for any

consequences of their use.

The assertions made in this report belong to the authors and are intended for general guidance

only. Neither MIEPO nor Finasist Consulting Ltd. can accept any responsibility for loss

occasionated to any person or organisation acting or refraining from action as a result of any

material in this publication.


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Abbreviations

CISCommonwealth of Independent StatesCLDCredit Line Directorate

FAOUnited Nations Food and Agriculture Organisation

MAFIMinistry of Agriculture and Food Industry

MIEPOMoldovan Investment and Export Promotion Organisation

NAIPNational Agency for Interventions and Payments

NBMNational Bank of Moldova

NBSNational Bureau of StatisticsSHSState Hydro-Meteo Service

SMESmall and medium-sized enterprise

WBWorld Bank

BYBelarus

EE - Estonia

EUEuropean Union

FRFranceGBGreat Britain

GEGeorgia

GE - Germany

GRGreece

IQIraq

IT - Italy

KZKazakhstanPLPoland

RO - Romania

RSSerbia

RURussian Federation

SKSlovakia

UAUkraine


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Contents

Contents ............................................................................................................................. 4

Executive summary ........................................................................................................... 6

Key messages .................................................................................................................... 7

Capitolul 1. Flashback on agriculture in Republic of Moldova ................................. 8

1.1 Production and agriculture land .......................................................................... 8

1.2 Agribusiness and food processing industry ....................................................... 11

1.3 Markets ................................................................................................................... 13

1.4 Resources and competitiveness ......................................................................... 141.5 Agriculture and food industry profitability ......................................................... 15

1.6 Access to nutrients ................................................................................................ 16

1.7 Access to finance ................................................................................................. 17

1.8 Agriculture sector SWOT analysis ........................................................................ 21

Capitolul 2. Organic agriculture (farming) in Republic of Moldova ....................... 22

2.1 Legal framework and certification..................................................................... 22

2.2 Organic production, export ................................................................................ 24

2.3 Subsidies ................................................................................................................. 28

2.4 Sector barriers ........................................................................................................ 29

2.5 Organic agriculture positive effects .................................................................. 30

2.6 Existing models of organic farming in Moldova ............................................... 31

Capitolul 3. International experience in organic farming ........................................ 35

3.1 Ongoing status of international organic farming ............................................ 35

3.2 Ongoing status of organic farming in Europe and EU .................................... 36

3.3 Country study: Estonia .......................................................................................... 383.4 Country study: Czech Republic .......................................................................... 40

Future lessons ................................................................................................................... 42

Sources ............................................................................................................................. 44


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Exhibits listExhibit 1 Evolution of agriculture production value, mio MDL .................................................................. 9

Exhibit 2 Structure of land fund in 2011, thousand ha, % ......................................................................... 10

Exhibit 3 Land fund ownership structure, 2011 ........................................................................................... 11

Exhibit 4 Use of agriculture machinery, units per 1000 ha of arable land ............................................ 11

Exhibit 5 Banking lending to agrifood sector, mio. MDL, % ..................................................................... 17

Exhibit 6 Agriculture areas under organic crops ....................................................................................... 24

Exhibit 7 Structure of organic areas ............................................................................................................. 25

Exhibit 8 Dynamics of organic farmers ........................................................................................................ 25

Exhibit 9 Exported volumes of organic production, tons ......................................................................... 26

Exhibit 10 Organic farming in EU member state, % (2007) ...................................................................... 37

Exhibit 11 Estonian organic farming label ................................................................................................... 38Exhibit 12 Czech Republic organic farming label ..................................................................................... 40

Tables listTable 1 Agriculture production in 2011, quantities ..................................................................................... 9

Table 2 Key results in agriculture in 2011 ..................................................................................................... 12

Table 3 Key results in food processing industry in 2011 ............................................................................ 12

Table 4 International trade with food products, animals, beverages and tobacco in 2011 ........... 13

Table 5 Structure of fruits and vegetables exports in 2011, value and destination ............................ 13Table 6 Agriculture productivity comparable results in Republic of Moldova and some EU-

member states ................................................................................................................................................. 14

Table 7 Top of most profitable agriculture activities in 2011 (out of top 1000 most earnings

performing domestic companies) ............................................................................................................... 15

Table 8 Top of most profitable food processing industry activities in 2011 (out of top 1000 most

earnings performing domestic companies) .............................................................................................. 15

Table 9 Use of nutrients in agriculture, comparative breakdown, 2002-2010 ..................................... 16

Table 10 Comparative breakdown of use of nutrients per ha, t/ha ..................................................... 16

Table 11 Maturity of banking credits to agrifood sector, effective 30/09/2011 .................................. 18

Table 12 Players on the agrifood bank credits market, 2008-2011 ........................................................ 18

Table 13 structure of bank credits to agrifood sector according to financing source (own,

borrowed) in 2011 ........................................................................................................................................... 18Table 14 International projects and donor fund financing (ongoing programs) ............................... 19

Table 15 Bank lending to primary agriculture and food industry in January-September 2012 ....... 20

Table 16 1.8 Agriculture sector SWOT analysis ........................................................................................... 21

Table 17 National legal framework matrix governing organic agriculture .......................................... 23

Table 18 Sort and long-term estimations of organic areas and organic production exports ......... 27

Table 19 Subsidizing organic farming during 2007-2011 .......................................................................... 28

Table 20 Evolution of organic farming subsidizing instruments, 2007-2012 ........................................... 28

Table 21 Motives, factors and modes of governance for environment policy instruments (EPI)

matrix in Estonia ............................................................................................................................................... 39
http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568866http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568866http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568867http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568867http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568867http://c/Users/BIS/Dropbox/Agricultura%20ecologica/Studiu%20agricultura%20ecologica_11_eng.docx%23_Toc340568866


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6Chapter: Executive summary


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Executive summary

Most features of natural capital endowment (land, agro-climatic) and international specialization

recommend Moldova as a country with a high agriculture potential. Although relative indicatorshave a doubtful relevance, e.g. agriculture goods and services are worth 27% of the GDP butGDP/capita is only 2000 USD, agriculture impact is worth considering. After retail&wholesaleand industry, this is the third most important engine of the economy.

Regarded through the optics of production forces, agriculture relies heavily on householdagriculture, which exposes its granulation and low profitable profile. Because of rural penury,agriculture is still a subsistence activity. This brings about an informal and formal resistance to agenuine consolidation of agriculture land and boosting profitability. The sector is dominated byconventional agriculture (99% in terms of agriculture land), which drives ecological imbalancebetween anthropic and natural ecosystems and growing insertion of external inputs such as

fertilizers, pesticides and fuel.

Organic agriculture is a dynamic sector with great potential. It saw organic land increasing toover 22 thousand ha in 2011, under the impact of focused subsidizing policies of publicauthorities through 2008-2010. Due to budget austerity, 2011-2012 and declared intentions for2013 have brought a visible dissipation of subsidizing measures. Agribusinesses perceptionregarding this is negative. Most likely, these should be a deceleration of land conversion andeven exits from organic farming. Still, pessimistic scenarios arguing an increase of area underorganic agriculture to the range of 3% from the utilized agriculture area would imply exports ofover 60 mio Euro, against only 15 mioin 2011. This means exports of only crops production.

The local distribution channels are rather inexistent. This disparity is more impressive as retailinstruments, e.g. farm markets, boxes, organic food in school canteens, has gone far in Europeancountries. The most frequent alternative for this distressing condition is to sale organicproduction at conventional production prices, which is discouraging for organic farmers.

National organic agriculture sector development has to be linked to export markets, at least forthe middle term. These markets are more mature and can digest local organic products and offerfarmers fair prices. Still, pioneering a model of developing the organic sector without involvingthe local market would be a serious mistake. Sustaining the local distribution channels createshuge opportunities for related sectors (trade, rural tourism, unconventional medicine etc.), apartfrom reestablishing the ecological balance, health and driving social responsible behavior.

Governments politics must avoid creating such a misbalance, and the first step would be toreconsider subsidizing policies and re-introduce a special support measure for the sector.


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7Chapter: Key messages


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Key messages

Although it represents only a fraction of conventional agriculture, organic agriculture has

potential. As of 2011, only 3% of food products are organic (5% of cereals, fruits andvegetables). Nevertheless, areas under organic agriculture have boosted from 80 ha to 22 102 hathrough 2003-2011 (x270). The most frequent pleas in favor of this potential would be: superiorselling prices (including export), re-balancing of natural and anthropic environments,development of related industries (rural tourism), capitalization of land fund, incomes fromlower GHG emissions and fostering better management skills for farmers etc.

There are specific and general factors that can boost organic sector in Moldova and convert itinto a real driver of agriculture development. General factors are mostly common to overallagriculture development: increase investments, rise complexity of domestic marketsinfrastructure, enhance farmers business and management skills, develop rural infrastructure, e.g.

roads, irrigation systems etc. Specific factors can impact the sector o the short term: stimulateland conversion, enhance subsidizing, stimulate the demand through focused instrument andpromote the national organic brand on export markets. These please can be seen in the globalevolution of organic agriculture.

Exports of organic products in 2026 can reach 86-87 mio according to a realistic scenario oforganic land increment and over 130 mio according to an optimistic scenario. Both of theseestimations do not take into account price increments over time, the multiplication effect ofgenerating these incomes in the national economy, other pecuniary and relative advantages to theservice of the society.

Case-studies showcase existing role-models of organic businesses. But there is a problem withadvertising and showing support to farmers to assume this type of businesses. As it appears,these businesses evolve from a sound and responsible understanding of how perishable naturalagriculture resources are. These farmers even instigate to tax irresponsible behavior of farmers,e.g. fostering erosion, soil salinization and issue regulations that oblige farmers to use cultivationtechniques that can restore land and nature biocenosis, e.g. cultivate species of facelia tostimulate pollination, cultivate species of mustard to enrich soils with organic nutrients. Thesefarmers go even further by embracing low- and no-till1 cultivation technologies. Theiradvantages are demonstrated and are seen as the unique alternatives to two of the most importantchallenges for the national agriculture in present: increasing temperatures and lack of properwater for irrigation.

Public bodies must understand that laisser faire laisser passer-type stimulus for organicsector development, e.g. high cost fertilizers and operating inputs, are irrelevant on the long termin a highly competitive regional agriculture.

1 No-till farming (also called zero tillage or direct planting or pasture cropping) is a way of growing crops from yearto year without disturbing the soil through tillage. No-till is an agricultural technique which increases the amount ofwater and organic matter (nutrients) in the soil and decreases erosion. It increases the amount and variety of life inand on the soil but may require herbicide usage


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8Chapter: Flashback on agriculture in Republic of Moldova


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Capitolul 1.Flashback on agriculture

in Republic of Moldova

Traditionally, agriculture to Republic of Moldova holds a special significance. After inheritingthe technical and management infrastructure of the former soviet agro-industrial complex,domestic agriculture has underwent a difficult transition through 1990-2012, associated withdoubtful political decisions and turbulent socio-economical processes. The transition from over-centralization and collective property to private ownership and management is till undergoing,showing extreme severity for the poorest elements of the society.

During the last 5 years, agriculture is constantly growing. This can be linked to the privateinterest in agriculture, availability of the domestic capital, migration of local population and

agriculture, recent changes in government politics and economic liberalization. Foreignassistance programs and projects have made their substantial contribution to this outcome.

The biggest challenges related to the domestic agriculture is agribusiness management skillsdevelopment and learning, combat underground agriculture (escaping fiscality), enhancingtechnological complexity and post-harvest infrastructure, create genuine value chains and retainvalue domestically, occupational emancipation of socially vulnerable elements of the society.

As of today, assertions regarding Moldovans keenness of agribusinesses, secular traditions andemblematic quality of soils does not automatically recommend Moldova as profoundlyagricultural: in fact, Great Britain has a larger portion of its land as agricultural land (66.3% vs.

59% in Moldova), few thinking of Great Britain as of a agricultural country, and the largestreserves of chernozem are located in Ukraine (25% globally).

1.1Production and agriculture land

In 2011, agriculture goods and services were worth 22.1 billion MDL (+5%YoY), which madeup to 27% of the GDP same year (estimated at 82 billion MDL). 70% of this amount is cropproduction (cereals, fruits, vegetables etc.). The compound annual growth rate of agriculturegoods and services production value stood at 9.8% for 2001-20112. This growth takes intoaccount the negative impact of bad agriculture years. On average, Moldova is hit by drought onein 5 years in the North of the country and once in three years in the Center and South of the

country. There were 10 years of variable intensity drought within 1990-2011: 1990, 1992, 1994,1996, 1999, 2000, 2001, 2003, 2007 and 20113.

In terms of quantities, agriculture production increased by 4,6% yoy in 2011 (+6,7% yoy forcrop production and +0,4% yoy for animal husbandry production). In structure, 32% ofagriculture production is generated by agribusinesses, 19% are generated by small peasant farmsand 49% are generated by households. The relatively high portion of households is explained bythe important share in livestock breading and raising (80% of total).

2 National Bureau of Statistics, agriculture production of goods and services was 8646 mio MDL in 20013 State Hydro-meteorological Service, http://www.meteo.md/mold/art_seceta2011.htm


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Exhibit 1 Evolution of agriculture production value, mio MDL

Source: NBS, NHS, authorsestimations

Moldovan agriculture is mostly a producer of cereals and grain legumes. This crop distribution isreflected by the structure of the land fund (73% arable land). It is also a stress factor for theecological balance in agriculture. Estimations show that at least 40% of the arable land ispresently hit by erosion.

Table 1 Agriculture production in 2011, quantities

Production YoYCAGR

2009-2011

Th. t % %

Crops production

Cereals and pulses 2495 +2,6 +7,1

Sunflower 425 +10,8 +22,3

Sugar beef 590 -29,6 +32,3

Tobacco 5,4 -29,1 +10,8

Soya 78 -29,1 +26,2

Potatoes 351 +25,4 +16

Vegetables 361 +8 +8,3

Fruits, nuts, berries 377 +15,4 +10,6

Grapes 594 +24,6 -6,9

Animal husbandry production

Cattle and poultry livestock 161 +4,3 +12,2

Diary 560 -5,5 -1,3

Eggs (mio units) 703 -2,8 +4,8

Services 490 +4,6

Source: NBS, authorsestimation

0 2 500 5 000 7 500 10 000 12 500 15 000 17 500 20 000 22 500 25 000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

mio MDL

crop production animal husbandry production services

Drought


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Exhibit 2 Structure of land fund in 2011, thousand ha, %

Source: NBS, authors estimations

Only 228.3 thousand ha were irrigation-ready in 2011 (6.7% of land fund). Out of them, 213.3thousand ha were arable land and 13.3% were multiannual plantations. The Government hasvoiced plans to expand irrigated areas to 300 000 ha by 2020, an investment worth 11 billionMDL. There are also plans to restore 11 centralized irrigation systems covering 15 000 ha by

2015 trough the funding of Millennium Challenge Corporation.

There were 297.4 thousand ha of hydrological improved land (irrigated 228.2 thousand ha,drained 69.2 thousand ha) at the beginning of 20114. Bearing the fact that agriculture is stillrecovering from severe post-soviet era capital losses, increasing irrigated areas relies heavily onrestoring former agriculture collectivities irrigation systems and create water users associations.Losses incurred by agriculture due to lack of irrigation systems go beyond 400 mio. MDL onannual basis5.

The ownership structure shows that the bulk of land was in private ownership 73%. The statecontrols 72% of prairies and 99% of grassland.

4 State Agency for Land Relations and Cadastre,NOT INFORMATIV la proiectul Hotrrii GuvernuluiRepublicii Moldova Cu privire la aprobarea Cadastrului funciar la data de 1 ianuarie 20115 Farmers National Federation from Republic of Moldova, State Agency Apele Moldovei, Informative guide,Irrigation water users association

arable land; 1812,7;

73%

grassland;

350,4; 14%

prairies; 2,2; 0,1%

fallow land; 34,2;

2%

vineyards;

149,6; 6%

orchards; 133,3;

5%multianual

plantations; 282,9;

11%

Total area of agriculture land is 2498.3 thousand ha. In 2011, there was observed a rise infallow land (+17%) and orchards (+0,6%) areas, and a contraction of vineyards (-2,5%) andarable land (-0,22%) areas.


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Exhibit 3 Land fund ownership structure, 2011

Source: NBS, authors estimations

Regarding the intensity of agriculture machinery use, the domestic agriculture sector has acommon regional profile (as compared to Ukraine, Romania). In 2008, almost 20 tractors onaverage were used to cultivate 1000 ha of arable land6.

Exhibit 4 Use of agriculture machinery, units per 1000 ha of arable land

Source: FAO

1.2Agribusiness and food processing industry

In 2011, there were 2438 companies activating in agriculture, hunting and related services sector(this number encompasses as well companies which did not perform in 2011 but had pendingdebts to state budget). Almost 209 of these companies were small peasant farms (which

voluntarily submitted activity reports to statistics bodies in their region, or had over 3 mio. MDL

6 Agriculture equipment, tractors per 1000 ha, FAOSTAT

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Total land fund

Arable land

Orchards

Vineyards

Grassland

Prairies

Fallow land

Public ownership Private ownership

0

20

40

60

80

100

120

140

1995 2008


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in returns, or employed over 9 people). Presently, the total number of peasant farms goes to over300 000 units.

97% out of the 2438 companies were small and medium sized companies, employing over 46.7thousand people. These companies cohabited with other nearly 1200 companies from the food

processing industry, which made nearly two times more profits than companies in agriculture.

Although this sample of companies does not take into account households and all small peasantfarms (with legal status of natural persons), it could be considered as the most representative(formal) for the existing national agri-food complex in 20117.

Table 2 Key results in agriculture in 2011

No. ofcompanies

SMEsAverage numberof employees

Expenses withemployees

units units persons mio. MDL

2438 2378 46713 878(+3,3% yoy) (+3,3% yoy) (-23% yoy) (+12,7% yoy)

EarningsEarnings beforetax

Earningsprofitability

Mio. MDL Mio. MDL %

8118 1309 16%(+18,3% yoy) (+20,6% yoy)

Source: NBS, authorscalculations and estimations

Table 3 Key results in food processing industry in 2011

No. of companies SMEsAverage numberof employees

Expenses withemployees

units units persons mio. MDL

1222 1118 36599 1204(+4% yoy) (+4% yoy) (+4% yoy) (+4% yoy)

EarningsEarnings beforetax

Earningsprofitability

mio. MDL mio. MDL

7 Data released by State Agency for Land Relations and Cadastre shows that 2008,7 thousand ha of agriculture use

land is utilized a follows: 232 agriculture cooperatives farming 126,3 thousand ha (6.3%), 161 JSCs farming 40.4thousand ha (2.0%); 4624 LLCs faming 683.2 thousand ha (34.0%); 398.7 small peasant farms farming 555,1thousand ha (27.6%). Production cooperatives rented 72.5 thousand ha, JSCs rented 30.7 thousand ha, LLCs rented607.6 thousand ha and small peasant farms rented 68.8 thousand ha.


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15297 902 6%(+4% yoy) (+4% yoy)

Source: NBS, authors calculations and estimations

1.3Markets

In 2011, Moldovas foreign trade balance with food products, animals, beverages and tobaccowas positive, with an excess worth 14.2 mio. USD (totalling over 29% of national exports and12% of national imports)8. With small exceptions (sugar, beverages), Moldovan exports of foodproducts are made of products incorporating a low to medium level of processing technologies.

Table 4 International trade with food products, animals, beverages and tobacco in 2011

Export Import BalanceTop in

export

Top in

importmil. USD mil. USD mil. USD

Live animals 8.2 5.7 2.5 9 12

Meat and meat products 21.6 33.5 -11.9 5 8

Diary and eggs 10.8 33.3 -22.5 8 9

Fish, crustaceans and molluscs 46.8 -46.8 12 7

Cereals and cereal derived products 86.1 77.3 8.8 3 3

Fruits and vegetables 280.7 132 148.7 1 1

Sugar, sugar and honey derived products 15.8 23.1 -7.3 7 10

Coffee, tea, cacao, spices and their substitutes 3 55.5 -52.5 10 5

Livestock feed 17.5 19.1 -1.6 6 11

Diverse food products and derivates 2.6 74.6 -72 11 4Beverages 180.9 47.9 133 2 6

Tobacco 28.7 92.9 -64.2 4 2

TOTAL 655.9 641.7 +14.2 x x


Fruits and vegetables were the most valuable category of exported food products in 2011, andthe destination of these exports, with small exceptions, was rather Commonwealth ofIndependent States markets (Russian Federation, Ukraine and Belarus) and Romania.

Table 5 Structure of fruits and vegetables exports in 2011, value and destination

Value Destination

mio. USD country

TOTAL, including: 280,7

Other nuts, fresh or dried, whether or not shelled or peeled 71.54 FR, GR, GE, IQ, IT

Apples, pears and quinces, fresh 58.02 RU, BY, KZ

Apricots, cherries, peaches (including nectarines), plums and sloes, fresh. 23.51 RU, BY

Grapes, fresh or dried 17.55 RU, BY, RO

Tomatoes, fresh or chilled 12.59 RU, BY

Other fruit, fresh (Strawberries, Raspberries, blackberries, mulberries andloganberries, Black, white or red currants and gooseberries, Cranberries,

10.02 RU, UA

8 National Bureau of Statistics, Social-economical development in Republic of Moldova in 2011: exports with foodproducts, beverages, live livestock and tobacco made up to 29.5% of national exports, while imports of sameproducts totaled 12.3% of national imports


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Value Destination

mio. USD country

TOTAL, including: 280,7

bilberries and other fruits)

Potatoes, fresh or chilled 5.18 RU, BY

Fruit, dried, mixtures of nuts or dried fruits 3.59 RU, PL, BY, UA

Citrus fruit, fresh or dried 2.12 RU, KZ

Dried leguminous vegetables, shelled, whether or not skinned or split 2.02 IT, GB, RO, RS

Other vegetables, fresh or chilled 1.97 RU, BG, UA, KZ

Cucumbers and gherkins, fresh or chilled 1.20 RU, KZ, RO

Onions, shallots, garlic, leeks and other alliaceous vegetables, fresh or chilled. 0.67 RU, RO, EE, GE

Vegetables (uncooked or cooked by steaming or boiling in water), frozen 0.59 RU, UA, RO

Cabbages, cauliflowers, kohlrabi, kale and similar edible brassicas, fresh orchilled

0.45 RU, BY, BG

Fruit and nuts, provisionally preserved but unsuitable in that state forimmediate consumption

0.39 BG, UA, RO, SK

Dates, figs, pineapples, avocados, guavas, mangoes and mangosteens, fresh ordried

0.19 RU

Carrots, turnips, salad beetroot, salsify, celeriac, radishes and similar edibleroots, fresh or chilled

0.15 RU, BY, RO


1.4Resources and competitiveness

World Bank data shows that Moldovan agriculture is underperforming. The added value peremployee in 2010 was 1,610 USD, less than the EU average (15,543 USD) or some of the mostwell performing European countries like Slovenia (76,632 USD) or Denmark (53,406 USD), oreven the neighbor countries Ukraine (2,500 USD) and Romania (9,700 USD)9. The compound

annual growth rate for this ratio within 1992-2010 was 1%, whereas for EU it stood at 3%. Thispositioning is also cemented by comparable yields in crop cultivation and animal husbandry.

Table 6 Agriculture productivity comparable results in Republic of Moldova and some EU-member states

Grossadded

value inGDP

GAV peremployee, 2000constant prices

Average yield per haAnimals per 100 ha of utilized

agriculture areas

Cereals

Vegetab

les

Fruits

Potatoe

s

cattle

Swine

Poultry

Sheep

and

goats

% USD 100kg/ha capete

Moldova 8.5% 1 610 25.3 83. 3 58 152.4 10.5 21.7 640 38.5

Belgia 1% 43 165 : 309. 1 276. 2 : 183.1 450.8 23 868 101.7Germania 1% 32 865 66.7 324. 5 267. 3 460 75.1 158.9 9 097 11.8

Frana 2% 58 070 70.7 230. 5 186. 7 414 69.1 51.2 15 279 30.0

Marea Britanie 1% 25 680 70.3 228. 4 121. 2 444 61.4 27.2 10 836 132.6

Olanda 2% 47 804 85.7 573. 7 388. 8 460 207.3 639.1 56 738 83.1

Danemarca 1% 53 406 58.9 249. 4 : 330 61.3 462.1 6 157 :

Polonia 4% 2 994 32.2 232. 9 110. 1 205 35.9 95.5 12 597 2.2

Romnia 7% 9 700 32.9 145. 8 88. 6 172 14.6 39.5 7 156 70.2

Bulgaria 5% 10 922 : 159 39. 5 : 17.4 21.8 7 690 56.5

Slovacia 4% 9 924 37 110. 1 94. 9 224 24.1 35.4 6 508 22.1

Cehia 2% 6 423 47 194. 5 97 297 37.5 52.4 8 596 6.2

Slovenia 4% 76 632 60 196. 1 : : 95.9 80.7 12 584 34.2

Estonia 3% 4 530 24.6 165. 9 6 175 28.9 40.8 2 009 7.1

9 http://data.worldbank.org/indicator/EA.PRD.AGRI.KD


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Grossadded

value inGDP

GAV peremployee, 2000constant prices

Average yield per haAnimals per 100 ha of utilized

agriculture areas

Cereals

Vegetab

les

Fruits

Potatoe

s

cattle

Swine

Poultry

Sheep

and

goats

% USD 100kg/ha capete

Source: WB,TAT, authors calculations and estimations

1.5Agriculture and food industry profitability

A top of most earning 1000 domestic companies shows that the most profitable agricultureactivities are: (i) growing crops and grain legumes, (ii) farming of swine and (iii) growing ofplants for planting.

Table 7 Top of most profitable agriculture activities in 2011 (out of top 1000 most earnings performing

domestic companies)

No. ofemployees

EarningsNet profit

(loss)

persons MDL MDL

Growing of cereals (except rice), leguminous crops and oilseeds

4121 1337732233 182259006

Farming of swine 405 326008978 51008522

Growing of plants for planting 60 37427262 27053619

Growing of grapes 265 38408801 15982839

Production of eggs 36 34974756 12013870

Growing of potatoes and seeds 121 33181408 9380897

Growing of other tree and bush fruits and nuts 297 31016084 8985710

Growing of sugar beet 74 32544335 4322759

Mixed farming (meat and eggs production) 140 43230125 3552777

Support activities for crop production 834 81051789 1411361

Raising of poultry for meat 867 376306118 -19166615

Source:Authors estimations and calculations

As for the food processing industry, the most profitable activities seem to be: (i) wine industry,(ii) production of sugar and (iii) and production of beer.

Table 8 Top of most profitable food processing industry activities in 2011 (out of top 1000 most earningsperforming domestic companies)

No. ofemployees

EarningsNet profit

(loss)

persons MDL MDL

Manufacture of wine 4709 1743219064 247721032

Manufacture of sugar 1560 1300739262 148474026

Manufacture of beer 393 692741194 108275946

Production of mineral waters and other bottled waters 397 400946333 80135689

Manufacture of refined vegetable oils and animal fats 788 1029839590 53719414

Manufacture of fruit or vegetable juices 1308 442064115 51376168

Manufacture of liquid milk and diary products 3160 1672979945 42499235

Processing and preserving of meat328 543560184 30611221

Manufacture of cocoa, chocolate and sugar confectionery 1268 503648848 29165885

Manufacture of distilled, potable, alcoholic beverages 826 517988477 26109989

Manufacture of fruit or vegetable food products (exclusive 1169 1118366303 25577989


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No. ofemployees

EarningsNet profit

(loss)

persons MDL MDL

potatoes)

Manufacture of rusks, biscuits and other dry bakery products 456 159457825 13652461

Preparation and preservation of fish 248 152988448 4149557Processing and preserving of poultry meat 239 138797230 3290038

Manufacture of other food products 106 125786173 1934953

Manufacture of crude vegetable oils and animal fats 109 164023390 1794301

Manufacture of ice cream 252 101685548 882328

Production of flour 127 45411911 724689

Manufacture of bread and rolls, fresh pastry, cakes, pies, tarts 3790 872080757 -12125947

Production of meat products 1780 610939701 -19435677

Source:Authors estimations and calculations

1.6Access to nutrients

The bulk of national market of fertilizers is made of imports. 338 companies were licensed toimport and trade fertilizers as of November 2012. Regionally, Moldovan agriculture incorporatedthe least of fertilizers, way less than some European countries such as Germany, Italy. Thesituation is explained by the lack of finance to purchase such operating inputs (including becauseof importers/resellers co operate with their margins). This creates indirect premises for a moreeasy conversion of land to organic farming and an accelerated increase or organic areas.

Globally, the incorporation of nitrogen and phosphate nutrients has grown within 2002-2010:+22% for nitrogen nutrients and +16% for phosphate nutrients. Use of potash fertilizersdecreased (-6% yoy) in the same period.

Table 9 Use of nutrients in agriculture, comparative breakdown, 2002-2010

Nitrogen nutrients Phosphate nutrients Potash nutrientsAgriculture land

Mio. T%

Th. T%

Th. T%

Th. ha

2002 2010 2002 2010 2002 2010 2010

Ukraine 443492 748365 68,7 33129 197909 497,4 42436 167322 294,3 41276

Russian Federation 654204 1192680 82,3 313151 436980 39,5 705909 263210 -62,7 215561

Romania 239071 305757 27,9 72996 123331 69,0 14056 51500 266,4 13523

Republic of Moldova 14700 16400 11,6 200 2400 X12 100 1300 X13 2472

Poland 831700 1294223 55,6 302600 388382 28,3 377400 462157 22,5 16119

Lithuania 13653 106716 681,6 67412 54481 -19,2 99479 42605 -57,2 2689Latvia 36047 58643 62,7 4546 16150 255,3 8636 16288 88,6 1833

Italy 845003 498605 -41,0 316143 180254 -43,0 256941 185518 -27,8 13908

Germany 1787833 1786485 -0,1 327387 286348 -12,5 479673 433743 -9,6 16886

France 2203200 2050015 -7,0 713300 294500 -58,7 965100 431730 -55,3 29266

Estonia 16700 28628 71,4 4015 6117 52,4 6292 9366 48,9 931

Czech Republic 191778 255423 33,2 41409 46116 11,4 30555 55756 82,5 4239

Austria 170974 86153 -49,6 77513 23614 -69,5 75636 38188 -49,5 8927

Source: FAO

Table 10 Comparative breakdown of use of nutrients per ha, t/ha

Nitrogennutrients Phosphatenutrients Potashnutrients

t/ha

Ukraine 1813 5 4


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Russian Federation 553 2 1

Romania 2261 9 4

Republic of Moldova 663 1 1

Poland 8029 24 29

Lithuania 3969 20 16

Latvia 3199 9 9

Italy 3585 13 13

Germany 10580 17 26

France 7005 10 15

Estonia 3075 7 10

Czech Republic 6026 11 13

Austria 965 3 4

Source: FAO

1.7Access to finance

In 2011, financing worth 3.7 billion MDL was directed to agriculture and food processingsectors. Banks accounted for 92% of this (3.37 billion MDL). The 351 savings and lendingassociations injected 160 mio. MDL into the sectors (63% of their credit portfolio), whereasmicro-financing organizations financed the sectors with nearly 153 mio. MDL (8% of their creditportfolio). This financing does not take into account the 400 mio. MDL from the agriculturesubsidizing fund, as well as farmers own resource investments.

After a sink in 2009, bank credits to agrifood sector increased by 30.1% in 2010 and by 20.4% in2011, reaching 3.37 billion MDL. This was also triggered by decreasing interstate rates for bothforeign currency credits (3 p.p. in 2010 and 1 p.p. in 2011) and MDL credits (4 p.p. in 2010 and2 p.p. in 2011). In 2011, the average interest rate for foreign currency credits stood at 8.75%,

while for MDL credits the average interest rate reached 14.37%. Overall, agrifood sector had ashare of 13.5% from the national banking system credit portfolio.

Exhibit 5 Banking lending to agrifood sector, mio. MDL, %

Source: NBM, raw data from commercial banks, authors calculations

In 2011, the average credit to agrifood sector stood at 779 thousand MDL (+25.3 yoy). As of

November 2012, 62% of the credit portfolio (worth 2.54 billion MDL) and 91% of the number ofcredits were disbursed in national currency. In January-November 2012, the average bankingcredit stood at 422 thousand MDL for MDL credits and at 3 mio. MDL for foreign currency

32873562

37864025

2790,7

2155,7

2804,5

3376

14,4%

8,3%

6,3%6,3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2008 2009 2010 2011

Credit balance Dsiboursed credits Credit balance evolution


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credits (the banking sector average is 129 thousand MDL and 2 mio. MDL respectively). 58% ofcredit portfolio and 54% of the number of credits had a medium term maturity (1 to 5 years). Theaverage medium term credit stood at 676 thousand MDL.

Less than 1 year maturity credits (usually disbursed for working capital) reached 32% of the

credit portfolio balance (1.35 billion MDL) and 44% of the number of credits (2881 credits)effective 30/09/2012.

Table 11 Maturity of banking credits to agrifood sector, effective 30/09/2011

Credit balance%

No of credits%

Th. MDL units

Pn la 1 an 1 350 238 32% 2 881 44%

De la 1 la 5 ani 2 411 303 58% 3 568 54%

Peste 5 ani 395 913 10% 105 2%

Total credite acordate agriculturii 4 157 454 100% 6 554 100%

Total credite pe sistem 28 990 170 126 507


The biggest players on the agrifood bank credits market are BC Moldova Agroindbank SA, BCMoldindconbak SA and BC Victoriabank SA.

Table 12 Players on the agrifood bank credits market, 2008-2011

# Bank 2011 2010 2009 2008Marketshare,2011

Marketshare

evolution11/08

th. MDL th. MDL th. MDL th. MDL % p.p.

1 Moldova Agroindbank 1 389 005 1 321 252 946 517 1 160 462 41.1% -0.42 Victoriabank 365 047 179 309 344 391 432 697 10.8% -4.7

3 Moldindconbank 475 366 295 752 156 400 250 707 14.1% 5.1

4 Banca Social 235 156 209 916 181 735 138 091 7.0% 2.0

5 FinComBank 86 369 96 952 84 027 123 413 2.6% -1.9

6 Eximbank 42 206 88 429 50 762 151 521 1.3% -4.2

7 Banca de Economii 112 986 239 841 68 035 109 865 3.3% -0.6

8 Unibank 42 767 37 638 24 844 22 671 1.3% 0.5

9 Banca Comercial Romn 214 415 5 453 38 198 95 606 6.4% 2.9

10 Energbank 230 299 186 854 137 847 152 464 6.8% 1.4

11 ProCreditBank 147 141 113 000 70 425 23 329 4.4% 3.5

12 Universalbank 0 0 27 802 0 0.0% 0.0

13 Mobiasbanc 20 431 8 284 24 729 125 889 0.6% -3.9

14 EuroCreditBank 150 6 013 0 3 950 0.0% -0.1

15 Comerbank 14 217 15 842 0 0 0.4% 0.4

Total 3 375 555 2 804 535 2 155 712 2 790 666 100.0% x


In 2011, the agrifood sector was credited from the banks own resources. The share of banks ownresources raged between 52-100% from the overall portfolio of credits to the sector.

Table 13 structure of bank credits to agrifood sector according to financing source (own, borrowed) in2011

# Bank Value of credits Number of creditsOwn Borrowed Own Borrowed

% % % %

1 MAIB 77.9 22.1 79.8 20.2


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# BankValue of credits Number of credits

Own Borrowed Own Borrowed

% % % %

2 Fincombank 51.9 48.1 59.1 40.9

3 Energbank 65.3 34.7 37.5 62.5

4 Victoriabank 71.7 28.3 32.8 67.2

5 Eximbank 76.3 23.7 53.1 46.96 Moldindconbank 67.2 32.8 59.0 41.0

7 EurocreditBank 100.0 0.0 100.0 0.0

8 Comertbank 100.0 0.0 100.0 0.0

9 Unibank 100.0 0.0 100.0 0.0


Just like in the last years, banks borrowed credit finances from two sources: (i) financing projectsfunded by international financial institutions or international development agencies and (ii)sector support programs, state or international donor-funded.

The financing projects funded by international financial institutions or international developmentagencies are employing three disbursement schemes: (i) direct financing of local financialinstitutions, which credit local SMEs according to own credit criteria; (ii) apex financing, withinwhich funds are made available to local financial institutions for strictly designed measures, andcredits are approved only by the international funding institution or development agency; (iii)leasing, e.g. 2KR project, which uses a quasi-leasing financing scheme.

Sector support programs are state and international donor-funded, e.g. Japanese Non-ProjectGrant Aid to SME sector support and development in Moldova, the Project for the Social-Economic Enabling of the Youth (PSEEY), the Credit Guarantee Fund (CGF) of the Small andmedium-sized enterprises sector development organisation in Moldova, the Interbank Society for

Credit Guarantee Garant Invest, Private Sector Investment program, Improvement of socialand economic condition in the rural areas of Moldova program and the Pilot program for theremittances attraction into economy (PARE 1+1) etc.

Finally, in 2011, credits worth 208.17 mio. MDL, 16.78 mio. USD and 11.64 mio. werefinanced through international institutions and donors credit lines and revolving funds (repaidcredits). 76% of these amounts were revolving funds (11.39 mio. USD, 8.38 mio. and 188.62mio. MDL).

On aggregate, beginning with the start of implementation of small and medium-sized enterprisesdevelopment programs under the Line Credit Directorate, the agrifood sector received financing

worth 1,326.84 mio. MDL, 42.24 mio. USD and 14.99 mio. Euro, which is 64.23% from thetotal value of credits to the sector. There were 5758 financed projects, out of which 1401 werealso grant projects (from RISP1, FIDA 2, PASET 2 and PSEEY programs).

Table 14 International projects and donor fund financing (ongoing programs)10

Program Currency

Discounted to

local financial

institutions in

2011

Total

discounted to

local financial

institutions

Total repaid by

local financial

institutions,

credit body

Debt balance of

local financial

institutions,

credit body

Rural Investment and Services

Program (RISP)

MDL 42 207 176 639 479 149.8 197 641 030.4 441 838 119.4

$ 6 042 650 9 104 168 962 867.1 8 141 300.9

468 950 468 950 0 468 950

10 Credit Line Directorate


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The Rural Finance and Small

Enterprise Development

Project (IFAD)

Lei 103 999 711 775 321 870.2 377 802 783.7 397 519 086.5

$5 527 355 13 881 149.8 3 060 398.3 10 820 751.5

Competitiveness enhancement

project (CEP)

MDL 13 621 951 27 486 951 8 453 804 19 033 147

$ 4 758 656 5 906 138.5 557 982 5 348 156.5

10 866 580 12 952 715.5 1 754 399 11 198 316.5

Kreditanstalt fur Wiederaufbau

(KfW)

MDL 6 635 370 50 013 394.1 17 085 124.8 32 928 269.3$ 450 000 450 000 0 450 000

300 000 300 000 0 300 000

Project for the Social-Economic

Enabling of the Youth (PSEEY)MDL 41 704 034 121 584 897.1 42 409 634.1 79 175 263

TOTALMDL 208 168 242 1 695 972 572.1 674 309 927 1 021 662 645.1

$ 16 778 661 73 613 202.4 48 852 993.5 24 310 208.9

11 635 530 32 744 112.1 20 767 049 11 208 113.1

Source: LCD, NBM, raw data from commercial banks, authors calculations

Banking sector does not appear to encourage the agribusiness lending: the share of loans granted

to this sector is relatively stable and did not exceed 14% per total portfolio. The commonness ofthis phenomenon derives from the fact that 12.8% of these loans are problematic compared to theaverage 8.1% per domestic banking sector. The share of the fund related risk is by 6.7 p.p. abovethe share in total portfolio. Therefore, the level of indebtedness of the agricultural business(compared to the financial performances) stood at an admissible level: the total gross debt ratio 1.4 (acceptable up to 1.5), ROA - 6% (acceptable from 6%), ROE 14.3% (acceptable from12%)11.

In January-September 2012, local commercial banks have lent credits worth 2.99 billion MDL toboth primary agriculture and food industry. 1.78 billion MDL have been lent to food industryprocessors (61.4%), whereas 1.12 billion MDL have been lent to primary agriculture companies.

This originates in different debt capacity in primary agriculture and food industry sectors.

Table 15 Bank lending to primary agriculture and food industry in January-September 201212

# Denumirea bncii AgriculturIndustrie

alimentarTotal

Pondereagricultur

din total

Pondereindustrie

alimentardin total

mii MDL mii MDL mii MDL % %

1 Banca Social 44 129 125 513 169 642 26,0 74,0

2 Banca Comercial Romn 48 797 0 48 797 100,0 0,0

3 Banca de Economii 40 289 37 437 77 726 51,8 48,2

4 Comerbank11 542 24 468 36 010 32,1 67,9

5 EuroCreditBank 8 098 0 8 098 100,0 0,0

6 Energbank 79 920 89 051 168 971 47,3 52,7

7 Eximbank 28 615 39 124 67 739 42,2 57,8

8 Fincombank 48 436 222 955 271 391 17,8 82,2

9 MAIB 396 128 862 557 1 258 685 31,5 68,5

10 Mobiasbanca 8 416 26 443 34 859 24,1 75,9

11 Moldindconbank 128 672 149 762 278 434 46,2 53,8

11Authors calculation from commercial banks monthly and quarterly statistic reports (data does not include most ofsmall peasant farms)12 The separated evidence of primary agriculture and food industry bank lending is possible due to changesintroduced starting with January 2012 in the methodology banks use to keep the evidence of these credits(aggregated data was only reported before)


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# Denumirea bncii AgriculturIndustrie

alimentarTotal

Pondereagricultur

din total

Pondereindustrie

alimentardin total

mii MDL mii MDL mii MDL % %

12 Procreditbank 57 142 3 427 60 569 94,3 5,7

13 Unibank 20 863 38 390 59 253 35,2 64,814 Victoriabank 200 084 162 357 362 441 55,2 44,8

15 Banca Social 44 129 125 513 169 642 26,0 74,0

Total 1 121 131 1 781 483 2 995 262 38,6 61,4


1.8Agriculture sector SWOT analysis

Table 16 1.8 Agriculture sector SWOT analysis

Strengths Weaknessesa. Availability of land and agro-climatic resourcesb. Adjusted and harmonized legal framework

regulating organic agriculture

a. Agriculture land erosionb. Low agriculture land irrigation readinessc. Low embracement of no-till and low-till

cultivation technologiesd. Low incorporation of post-harvest

processing technologies

Opportunities Threatsa. Expected signing of Deep and Comprehensive

Free Trade Agreement (DCFTA) with the EUb. Free trade agreements with 9 Commonwealth

of Independent States countries

c. Entry of Russian Federation in WTOd. Specializing in intensive crop production,greenhousing and organic production

e. Development of naval infrastructure ofInternational Free Port Giurgiulesti

f. Increase of donor-funded internationalprojects, diversification of projects reach

g. Agrifood know hom import by Moldovanexpats and new business modelsimplementation

h. Unification of fiscal policiesle

a. Exodus of qualified specialists and peopleable to work

b. Increasing imports of agrifood fresh andprocessed products

c. Stagnation of research&developmentinstitutionsd. Bad weather conditions frequency and

severity exacerbation


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22Chapter: Organic agriculture (farming) in Republic of Moldova


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Capitolul 2.Organic agriculture

(farming) in Republic of Moldova

According to FAO/WHO Codex Alimentarius, organic agriculture is "a holistic productionmanagement system which promotes and enhances agro-ecosystem health, including

biodiversity, biological cycles, and soil biological activity. It emphasizes the use of management

practices in preference to the use of off-farm inputs, taking into account that regional conditions

require locally adapted systems. This is accomplished by using, where possible, agronomic,

biological, and mechanical methods, as opposed to using synthetic materials, to fulfil any

specific function within the system".

Presently, the most distinguishable advantages of organic agriculture against conventional

agriculture refer to the use of pesticides (restrictions to use pesticides enhance undergroundwaters quality and pesticides residuum in food products), the use of plant nutrients (organic foodis associated with less in rates of nutrients in food products), soil protection (crop rotation, mixedgrassland, cultivating crops that retrieve and consume soil nitrogen surplus etc.), enhancingbiodiversity (conservation of natural habitats).

The global concept of organic agriculture starts from two major social implications:

A. Organic agriculture is a unique method of manufacturing food products, which created aspecific market for organic products and clients ready to buy these products, usually, at ahigher price. From this point of view, organic agriculture is financed by the consumers

who see their advantage in its benefits. In this context, organic agriculture is governed bymarket rules.B. Organic agriculture is also known for delivering public goods, mostly ecological benefits,

but also public health, social and rural development, and biodiversity welfare. In thiscase, one emphasizes farmers land management. This delivery of public goods can bealso supported by public money. From this angle, organic agriculture development is alsoa choice of politics, mostly based on environment protection policies.

Both roles of organic agriculture make their contribution to enhance farmers earnings, whileeconomic opportunities for the food value chain stakeholders derive from market mechanisms.

Organic agriculture brings a type of reengineering of agriculture business this means afundamental rethinking of production processes in order to dramatically enhance the linksbetween the market, the producers and the clients, in order to suppress operation costs andincrease competitiveness. The theories prove that the viability of this process also depends onwho intense is the collaboration between agriculture and environment policy makers , as well ason how much the Government is ready to adopt a multidimensional stand that promotes theecologic balance equilibrium in strategies targeting social and economical development. Thismust also be in line with increasing social welfare and social coherence.

2.1Legal framework and certification

The national legal framework in the field of organic agriculture has its roots in 2005, when theLaw No. 115 of 09/06/2005 regarding organic food products was adopted. The law was enabledin February 2006 by the adoption of Government decision No. 149 of 10/02/2006.


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As of today, the national legal framework is very well adjusted to European framework. At leastnine EC Regulations and quality standards have been transposed into the national legislation andregulatory framework. This timing is very advantageous for national manufacturers and for thesector in general.

Table 17 National legal framework matrix governing organic agriculture

In-force legal framework Law No. 115 of 09/06/2005 on organic food production GD No. 149 of 10/02/2006 on the implementation of law on organic food production GD No. 1078 of 22.09.2008 on adoption of technical regulation on Organic food production and

organic food labeling MAFI Regulation No. 179 of 10.09.2008 on rules of bookkeeping of Land history records MAFI Regulation No. 9 of 19/01/2010 on establishment of the commission authorizing Inspection

and Certification Bodies MAFI Regulation No. 16 of 05/02/2010 on rules of registration of companies manufacturing

organic food

To-be-adopted legal framework, with great impact on the sector GD on approving the national brand Organic agriculture-Republic of Moldova and Regulation on

using the national brand Organic Agriculture Republic of Moldova GD on adjusting and the GD No. 149 of 10/02/2006 on the implementation of law on organic food

production according to Commission Regulation (EC) No 889/2008 of 5 September 2008 layingdown detailed rules for the implementation of Council Regulation (EC) No 834/2007 on organicproduction and labelling of organic products with regard to organic production, labelling andcontrol

European/international regulations transposed to national framework Council Regulation (EC) No 834/2007 of 28 June 2007 on organic production and labelling of

organic products and repealing Regulation (EEC) No 2092/91 Commission Regulation (EC) No 889/2008 of 5 September 2008 laying down detailed rules for the

implementation of Council Regulation (EC) No 834/2007 on organic production and labelling oforganic products with regard to organic production, labelling and control

Commission Regulation (EC) No 1254/2008 of 15 December 2008 amending Regulation (EC) No889/2008 laying down detailed rules for implementation of Council Regulation (EC) No 834/2007on organic production and labelling of organic products with regard to organic production,labelling and control

Commission Regulation (EC) No 1235/2008 of 8 December 2008 laying down detailed rules forimplementation of Council Regulation (EC) No 834/2007 as regards the arrangements for importsof organic products from third countries

Commission Regulation (EC) No 710/2009 of 5 August 2009 amending Regulation (EC) No889/2008 laying down detailed rules for the implementation of Council Regulation (EC) No834/2007, as regards laying down detailed rules on organic aquaculture animal and seaweed

production Commission Implementing Regulation (EU) No 203/2012 of 8 March 2012 amending Regulation

(EC) No 889/2008 laying down detailed rules for the implementation of Council Regulation (EC)No 834/2007, as regards detailed rules on organic wine

Commission Implementing Regulation (EU) No 508/2012 of 20 June 2012 amending Regulation(EC) No 1235/2008 laying down detailed rules for implementation of Council Regulation (EC) No834/2007 as regards the arrangements for imports of organic products from third countries Textwith EEA relevance

ISO/IEC Guide 65:2003. General requirements for bodies operating product certification systems ISO/CEI EN 17011 Conformity assessment General requirements for accreditation bodies

accrediting conformity assessment bodies;


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There are 5 accredited companies to perform organig products manufacturers certification whichare licensed by the Ministry of Agriculture and Food Industry: CERTIFICAR-ECO SRL, CRPAInspect, CS ICEA Group SRL, CS ECOGRUPPO ITALIA-M SRL.

In December 2011, the Government has registered and adopted the

logo of the national brand Organic Agriculture Republic ofMoldova. This is applied only on products, labels and packing oforganic food products which have been inspected and certified bycertification bodies along their production cycle.

2.2Organic production, export

Organic agriculture has grown at a steady pace in recent years in Moldova. Organic crops are thebackbone of the sector. During 2003-2011, areas under organic crops went up from 80 ha to

22 102 ha (x270). The compound annual growth rate (102%) shows organic land has doubledeach year on average. Subsidies are largely to blame for this, although one can observe a switchon how they have been implemented recently. In 2011, organic certified areas made up to 0.9%of utilized agriculture areas in Moldova.

Exhibit 6 Agriculture areas under organic crops

Source: MAFI, Organic agriculture in Moldova: present and perspectives, April 2012

Structurally, organic areas were mostly under cereals, vineyards and protean crops. Therelatively narrow areas under grassland illustrates how badly organic animal husbandry isunderperforming in Moldova.

80 168 250 715

7 345

11 755

16 585

19 74022 102

0

5 000

10 000

15 000

20 000

25 000

Areas under organic crops

Ha

2003 2004 2005 2006 2007 2008 2009 2010 2011


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Exhibit 7 Structure of organic areas


Over 170 producers were organically cultivating their crops in 2011 (7% of total number ofagriculture companies). The number of certified organic farmers has grown with 41% CAGRduring 2003-2011. MAFI estimations say their number will expand to 260 close to 201513.

Exhibit 8 Dynamics of organic farmers


Exports of organic crops have generally grown steady, except 2011, when a contraction of nearly30% was observed. Nearly 15,400 t of organic products have been exported in 2011, worth 15mio. Euro, against 22 mio.a year before. Exports consist mostly of cereals, oilseed and proteancrops, berries, oil of aromatic plants, sunflower oil. 80% of these exports are unprocessed cropsexports. The main export markets are Germany, Austria, Netherlands, Italy, Switzerland,

13 MAFI, Organic agriculture in Republic of Moldovapresent and perspectives

Cereals, 38%

Vineyards, 21%

Protean, 21%

Berries, 7%

Fruits, 6%

other crops, 3%Grassland,

3%Vegetables, 1%

11 1723

31

64

155

185

160

172

0

20

40

60

80

100

120

140

160180

200

Farmers/manufacturers

units

2003 2004 2005 2006 2007 2008 2009 2010 2011


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Denmark and France. Until know, MAFI has no concluding and publically available statisticsregarding the structure of these exports.

Exhibit 9 Exported volumes of organic production, tons

Source: MAFI, Organic agriculture in Moldova: present and perspectives, April 2012; authors calculations andestimations

Exports are expected to contract in 2012 as well. An extrapolation of a general contraction of30% of the agriculture production in 2012 is expected to drive an even rougher contraction oforganic production exports. This logic brings the exports of organic crops and products to lessthan 10-11 thousand tones in 2012, worth 10-12 mio. Euro.

A moderate scenario of 10.6% CAGR during 2012-2026 would bring the total organic area inMoldova to 100,000 ha, meaning 4% of the total utilized agriculture area. This is a highlyprobable scenario due to the revised subsidizing policy in 2013. In these conditions, organic areawould be less by 1 percentage point than the present average in European Union (nearly 5% ofutilized agriculture land in European Union is organic)14.

A pessimistic scenario, meaning a CAGR of 8,4% during the same period, would correspond to atotal organic area of 75,000 ha, reaching 3% of the national utilized agriculture area. Thisscenario brings the exports of organic products to nearly 52,000 - 53,000 t. For an average 1Euro/kg (as it was the case in 2010-2011), this means the exports value would reach 53 mio.Euro. According to the moderate scenario, the exports are supposed to reach70,000 t, while anhighly optimistic scenario would translate into exports worth 104105 thousand t15.

These estimates do not take into account some important factors such as: increase of organicproducts export prices, unstable subsidizing policies, bad weather conditions that may result indecreasing volumes of production, growing potential of animal husbandry organic sector.

14 The pace for the organic land increment was calculated from the expected ratio of organic land at the end of 202615 The expected value of the exports was calculated using the organic land CAGR during 2012-2026

1 3732 486

3 675 4 165

6 750

11 600

14 500

22 000

15 400

10 780

0

5 000

10 000

15 000

20 000

25 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

tone

-30% estimated


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Table 18 Sort and long-term estimations of organic areas and organic production exports

EffectiveShort term

estimatesLong-term estimates

CAGR

2012-

2026

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Utilized agriculture land, thousand ha 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498 2 498

Organic areas, thousand ha 19,7 22,1 24,3 20,0

Yoy evolution, % 19 12 10 -18

Estimates of organic land area ratio, %

Optimistic 0,8 0,9 1,0 0,8 1,0 1,3 1,7 2,1 2,5 2,9 3,3 3,7 4,1 4,5 4,9 5,3 6,0

Moderate 0,8 0,9 1,0 0,8 0,9 1,2 1,4 1,6 1,8 2,0 2,3 2,5 2,7 2,9 3,1 3,4 4,0

Pessimist 0,8 0,9 1,0 0,8 0,8 1,1 1,2 1,4 1,5 1,7 1,9 2,0 2,2 2,4 2,5 2,7 3,0

Estimates of organic land area, thousand ha

optimist, thousand ha year-end 25,0 32,5 43,5 52,7 62,8 72,5 82,4 92,2 102,0 111,9 121,7 131,5 149,9 13,9

yoy increase, % 24,9 30,0 33,8 21,3 19,2 15,4 13,7 11,9 10,7 9,6 8,8 8,1 14,0

moderate, thousand ha year-end 22,5 29,5 34,2 40,1 45,4 51,0 56,5 62,0 67,5 73,0 78,5 83,9 99,9 10,6

yoy increase, % 12,4 31,1 16,1 17,2 13,2 12,3 10,7 9,8 8,9 8,2 7,5 7,0 19,0

pessimist, thousand ha year-end 21,0 26,7 30,1 34,7 38,6 42,9 47,0 51,2 55,4 59,5 63,7 67,8 74,9 8,4

yoy increase, % 4,9 27,4 12,6 15,1 11,4 11,0 9,6 8,9 8,1 7,5 7,0 6,5 10,5

Export, t 22 000 15 400 10780 14000

yoy increase, % 52 -30 -30 30

Estimates of organic products export, t

optimist , t 17 488 22 735 30 429 36 900 43 983 50 759 57 689 64 542 71 433 78 306 85 188 92 065 104 929 17,6

yoy increase, % 25 30,0 33,8 21,3 19,2 15,4 13,7 11,9 10,7 9,6 8,8 8,1 14,0

moderate, t 15 739 20 641 23 961 28 072 31 788 35 701 39 515 43 379 47 218 51 070 54 915 58 764 69 952 14,3

yoy increase, % 12 31,1 16,1 17,2 13,2 12,3 10,7 9,8 8,9 8,2 7,5 7,0 19,0

pessimist, t 14 690 18 717 21 076 24 268 27 044 30 028 32 908 35 840 38 746 41 665 44 578 47 493 52 464 12,0

yoy increase, % 5 27,4 12,6 15,1 11,4 11,0 9,6 8,9 8,1 7,5 7,0 6,5 10,5

Source:Authors calculations and estimations


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2.3Subsidies

Subsidies have a great impact on organic farming in Republic of Moldova. They are mostly usedto support new areas conversion from conventional to organic agriculture. Nevertheless, itrepresents only a fraction of the total volume of subsidies granted to agriculture (0.7% in 2010).

In 2007, the foundation of subsidizing was set by assigning 2 mio. MDL to organic farming.During 2007-2008, the support was conceded in order to compensate expenses during landconversion, and starting with 2009 support was also conceded for stimulating trade with organicproducts.

In 2012, subsidizing organic farming has changed, the sector being removed from the list ofspecial target measures, i.e. Measure no.6 Supporting and promoting of organic farmingdevelopment. The support was broke down to three distinct measures and does not tacitlysupport conversion of new areas. The impact of this policy change of direction (mostly dictatedby budget austerity) has the power to potentially temper the pace of new land conversion.

Table 19 Subsidizing organic farming during 2007-201116

# 2007 2008 2009 2010 2011 2012

Subsidies dedicated to organicfarming, th. MDL

2,000 4,000 5,000 2,600 :17 :

Subsidies utilized in organic farming,th. MDL

1,747.998 3,999.440 1,999.841 2,200.000 785,782 :

No. of organic farmers whobenefited from subsidies

24 32 38 41 13 :

Total subsidies to agriculture, th.MDL

365,047 179,309 344,391 400,000 400,000 400,000

Areas in conversion process, ha 2,857 3,587 7,997 : : :

Source: AIPA, MAFI

Table 20 Evolution of organic farming subsidizing instruments, 2007-2012

YearSpecial measure of

subsidizingSubsidizing instrument

2007700 MDL/ha for first year of conversion, 400 MDL/ha for second year of conversion

2008

2009700 MDL/ha for first year of conversion, 400 MDL/ha for second year of conversion, 40% price addition forexported organic products, 20% price addition for locally marketed organic products

2010

Measure No.6Supporting and

promoting of organic

farming development

700 MDL/ha for first year of conversion (not more than 100 ha per farmer),400 MDL/ha for second year of conversion (not more than 100 ha); 20% priceaddition for locally marketed organic products; state support limited to 150,000

MDL per farmer

2011

Measure No.6Supporting and

promoting of organicfarming development

800 MDL/ha for first year of conversion (not more than 200 ha per farmer);400 MDL/ha for second year of conversion (not more than 200 ha per farmer);400 MDL/ha for third year of conversion (not more than 200 ha per farmer),for multiannual plantations; state support limited to 200,000 MDL per farmer

2012

Measure No.1Stimulate crediting offarmers by financial

institutions

Maximum 400,000 MDL for reimbursement of credits contracted during 2010-2011

Measure No. 3 Addition of 5,000 MDL/ha to the initial subvention for establishing organic tree

16 Agency for Intervention and Payments in Agriculture, List of beneficiaries for Measure no.6, 2007-2011,

http://aipa.md//images//docs/benef_m6_2011.pdf,http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-200917 Data not accessible
http://aipa.md/images/docs/benef_m6_2011.pdfhttp://aipa.md/images/docs/benef_m6_2011.pdfhttp://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/index.php/lista-beneficiarilor/31-lista-beneficiarilor-2006-2009/173-lista-beneficiarilor-de-subventii-ce-au-contribuit-la-dezvoltarea-agriculturii-ecologice-2007-2009http://aipa.md/images/docs/benef_m6_2011.pdf


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Stimulate investmentsin establishing

multiannualplantations and

promoting vineyardproduction

plantation, nuts plantation, berries and strawberriesAddition of 2,000 MDL/ha to initial subvention for establishing organicplantations of aromatic crops

Measure No. 4Stimulate production

of greenhousevegetables

Addition of 10,000 MDL/ha to initial subvention for greenhouse farming

2.4Sector barriers

2.4.1Market channels barriersThe local market is underdeveloped and promotion of national organic production on exportmarkets rather inexistent or anemic. One can hardly observe marketing of organic products even

on local market. Farmers are on their own, there is also an insufficient association of farmersaiming at addressing sector problems and organic production promotion on local and foreignmarkets. Elaborating individually marketing strategies is difficult and expensive.

The Government hesitates to invest in organic food consumption promotion and environment friendly agriculture. The harsh competition on retail markets associated with relatively lowpurchasing power of residents make large retail chains irresponsive to organic products potentialwhich, regularly, are more expensive than conventional products. Finally, the Governmenthesitates to subsidize consumption of organic products, e.g. consumption of organic food inschool canteens.

2.4.2Conversion & production infrastructure barriersFarmers report difficulties during conversion process. Some of the challenges in conversion toorganic production are: (i) pest complications; (ii) decline in livestock production, and (iii)improper manure management18. The availability of organic fertilizers is also affecting as thereare no local producing units dedicated to organic production. In addition, there is a lack of cropvarieties resistant to harsh weather conditions; absence of an integrated protection system forplants; lack of advanced irrigation systems and advanced technologies for cropping andprocessing agricultural production, and inadequate knowledge about the many aspects ofproduction.

There is also a negative perception among farmers regarding high certification costs by foreign

companies. The position of farmers in the value chain is weak and their share of the premium isoften low. Traders are, in the majority of the cases, the holders of the certificates of the farms ( ).The demand in export markets is varying, which leads to non-permanent production and volumesof products. There is also an insufficient capacity of producers and processors to ensure qualityand quantities. Market information is lacking, which in turn exacerbate these challenges 19.

2.4.3Natural barriersNatural barriers refer to improper weather conditions affecting farmers earnings. Hightemperatures and drought are mostly affecting barriers. Studies show that their frequency ofthese is constantly increasing. In 2012, Moldova has been facing high temperatures since the

18 Viorel Gherciu, Green Economy Sector Study: The Potential of Organic Agriculture in the Republic of Moldova19 idem


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beginning of summer, the record for highest temperature being already twice surpassed (40.1 inJune, then 42.4C on 7 August)20. The State Hydro-Meteo Service (SHS) reports that since Junethe average annual temperatures have been 3.7-5.1 degrees above the norm1 and on 95% ofterritory the precipitations constituted 15-60% of the norm, with temperature on the soil reachinghistorically highest level of 63-71 degrees. As a result, 95% of countys territory has reportedlybeen affected by catastrophic drought.

Total preliminary estimated agriculture damage varies widely from 800-900 mio. lei to 2.2billion, while does not take into account the negative aftermath for the livestock. Major damagewas done to the Crops of group II (maize, sunflower, sugar-beet) and account for 73% from thetotal damage. For the Crops of the Group I (autumn wheat, barley, rape) the South of Moldovawas the most affected accounting for 49% out of total 575 mio. lei damage to this group of crops.Due to reduction of level of fodder availability in the country (by 60% as per preliminaryunofficial data), it is expected that a share of 45% of livestock is going to be slaughtered (poultryand swine mostly) in rural areas.

2.5Organic agriculture positive effects

Organic agriculture creates more value not only by setting a premium price of around 20 per centon the farmers product, but also by increasing quality differentiation in the marketplace. Justlike free economic zones and industrial parks are part of Government focused approach offoreign investment attraction strategy, organic farming is a potential market for investment andinnovation attraction. Both international and local capitals are perfectly eligible. Production andtrade of ecological products is a way to increase investments and innovation in the agrariansector and constitute one of the main modalities in achieving agriculture sustainability.

Growth of labor-consuming, high value crops, such as fruits and vegetables, is suitable for smallindividual enterprises, which constitute over 95% of the sector. This is a way of creating jobsand fighting rural penury. Because over 48% of national agriculture production is produced bysmall household farms, converting this land into organic land is a logical premise, especiallybecause of a minimum input of fertilizers, pesticides etc.

Organic farming contributes to the reduction GHG emissions because it reduces the consumptionof fossil fuels (notably those used in fertilizers manufacturing), as well as CO2, methane andnitrous oxide emissions. According to international studies (Subsidy guide, 2010), anddepending on the commodity produced, organic farming emits 6 to 60% less GHG than non-organic farming. Organic soils are estimated to assimilate nearly 2t CO2/ha yearly. GHG

mitigation for at least 3% of the utilized agriculture area in Moldova for a price of 20USD/t CO2would translate in earnings of nearly 3 mio. USD. Producing bio-fuels by organic farmers canalso stimulate energy balance diversification and reduce reliance on fossil fuels.

If soils are improved by organic management, they will increase their value at an average of atleast 20 per cent. The added capitalization of 3% of the utilized agriculture land would reach 9mio. USD. In a more complex approach, additional capitalization streams could come from theestablishment of organic fertilizers sub-sector and new job creation. Estimations show that thesector could employ over 100 thousand people and replace a fraction of imports of fertilizers, amarket worth 13-14 mio. USD in 2010. Similar opportunities exist for seeds and seedingmaterial sectors.

20 United Nations, Office of the resident Coordinator in Moldova, Moldova Situation report -2012 #1, Drought inMoldova


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Organic agriculture enhances biodiversity and ecosystem services, and preserves valuabletraditional landscapes that can eventually be assets in developing eco-tourism. Biodiversityconservation will improve lands converted to organic agriculture and the expansion of natural

protected areas will contribute to the stabilization of the natural balance between human beingsand nature.

2.6Existing models of organic farming in Moldova

2.6.1Oleg Zaharia, Luceuca, Orhei (organic berries and

fruits)Mr. Zaharia owns 25 ha raspberry, 2 haof currant, 5 ha of quince, 15 ha ofcherry and 4 ha of pear. Raspberry,

currant and quince plantations aremature, fruit-bearing plantations,organically certified. In 2012, becauseof severe drought, the quince plantationhas driven the business and providedmeans to cover expenses and maintainthe business afloat. Credit pressure washigh, raspberry and currant plantationwere not even harvested because ofextremely poor yields. The quince hasbeen mostly marketed to localconsumers (especially restaurants).

Mr. Zaharias available technical infrastructure consists of a newly built cooling facility (2000 tcapacity), with above-and below zero degrees temperatures, a water reservoir branched to a drip-watering system for the raspberry plantation, tractors and additional equipment. The land underthe plantations is privately owned by Mr. Zaharia.

During harvesting, Mr. Zaharia employsover 150 persons (raspberry harvesting).Good years yield 120-150 t ofraspberry. M. Zaharias maincompetitors on the raspberry market arethe households from Pocrovca,Dondueni region. The potential ofthese small household farms exceeds600t/year. The main market for theraspberry is Ukraine. The bulk ofraspberry is smuggled to Ukraine.Should problems arise with unofficialcustoms clearance, the raspberry floodsthe internal market (Chisinau central

market) which makes prices plunge fora specific period of time.

Key messages, lessons for the future:


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The local market of organic products is rather infant and almost inexistent. This isexacerbated by its narrowness, low awareness of organic farming, defying approach ofretail chains which se no opportunity in organic farming (are not impressed by theorganic labeling). As of today, Mr. Zaharia trades organic products as beingconventional.

The human factor is the most fluctuating element of agriculture equation. Irresponsibility,avidity and insobriety are common features among field workers.

Stunning facts are disclosed regarding organic raspberry exports. The largest part of themis smuggled by intermediaries to Ukraine, Belarus and Romania. On foreign markets theyare traded as conventional fruits, also because export of conventional fruits does notrequire additional papers to prepare and the generally issued sanitary certificate issufficient for customs service authorities.

There is basically no local market of raspberry and currant seeding material. Farmersdivest from currant plantation also because imported varieties of seeding material is nothomologated ant, therefore, they cannot claim subsidies for these plantations.

As an organic farmer of fruits, Mr. Zaharia resents the need of the post-harvestingtechnical infrastructure (e.g. sorting, grading equipment) which can be established, in hiscase, on the base of his already existing cooling facility under the form of a sub-regionalpost-harvest processing center.

Financing of farmers is also expensive. Building the cooling facility required a credit of 2mio. MDL, with an interest of 9%.

2.6.2Alexandru Cotorobai, Cobusca Veche, Anenii Noi

(plantations of aromatic plants)Mr. Cotorobai is the acting presidentof Aroma farming cooperative. 1575ha of land are farmed by thecooperative, out of which 401 hahave successfully underwent theconversion process

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