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Transition: retrospectives and perspectives

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Chapter I. Socio-Economic Policies

The Agricultural Policy
Victor Moroz

The chapter begins with the general statement that the Moldovan agricultural sector can hardly be described as one characteristic of a marked economy, and that the legacy of the centralized economy is still felt in the structural problems faced by the sector. Over the past ten years a decline has occurred both in the overall volume of agricultural production and in its form, and the so-called "agriculture of subsistence" has proliferated. These trends have had an extremely negative impact on the overall performance of the Moldovan economy, which is hugely dependent on agriculture.

The liberalization of Moldova's traditional markets in the East, the competitiveness of the new markets in the West, the morally outdated technologies and the lack of state support are some of the problems that the Moldovan agriculture is facing nowadays. Although the purchase power of Moldovan consumers has decreased significantly over the past years, the domestic production market has remained a secure source of income for food producers. The structure of Moldovan agricultural exports has changed with raw materials prevailing over manufactured goods, a trend that brings Moldova significant losses. Moldova's main markets are still the ones in the CIS area, and an incremental penetration of Moldovan goods on the European markets is noted.

Although a plan for the integral implementation of the agricultural reform was developed early on, no comprehensive approach was adopted in practice. At its basis has been the land reform, which was to result in a reduction in the state ownership of agricultural land, the distribution of land to rural inhabitants, and the in-kind distribution of land to individual farmers. The land reform proceeded slowly due to various bureaucratic and technical deficiencies, and in the case of the privatization of state enterprises of Soviet type was deliberately slowed down by the former managers of those enterprises. Formally, the reform has resulted in the private ownership of about 83 percent of agricultural land, of which 47 percent is owned by individuals and the rest by various forms of private enterprises. Qualitatively, however, the reform has not yet led to a viable production system based on the new structures.

On macroeconomic and commercial policies the author notes a significant reduction in state regulation of the agricultural sector, and a diversification of crediting services available to farmers, including the emergence of a network of Savings and Loans Associations, which support both agricultural and non-agricultural activities and whose members are mostly farmers.

A traditional exporter of agricultural products, Moldova has yet to develop a sound commercial policy to boost its agricultural exports. Although since 1993 Moldova has benefited of the European Union's General System of Preferences, most of the Moldovan goods exported to the EU fall into the category of sensible products and additional protectionist barriers are erected by such states as Sweden and the Netherlands.

A system of direct and indirect state support for agricultural producers is in place. It is characterized by a gradual reduction in real value, the inefficiency of state guaranteed loans, and mainly indirect, non-financial state support that pursues short-term objectives. Hence state subventions have contributed little to the development of the agricultural sector so far. The author suggests the need for more transparency and feasibility studies in the development of subvention policies, the elaboration of alternative policies and a relevant institutional reform.

Referring to the tax policy applicable to agriculture, the author notes the multiple types and unrealistically high taxes that Moldovan farmers are subjected to in conditions of scarce tax facilities. These and the poor administration of tax result in low levels of collected taxes. Hence the need for either the exemption of all agricultural enterprises from the income tax, currently at 25 percent, or the introduction of a singe tax in agriculture.

The author concludes by stating that the social sphere is almost non-existent in rural areas, the ad hod donations from private agricultural enterprises being the only funds available for the maintenance of such basic social objects as schools, kindergartens and hospitals. The living standard of the rural population is pretty low with only 14 percent of farmers being able to meet their basic needs with what they earn on their farms.

««« The Industrial Policy The Energy Sector »»»


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