Assessing Competitiveness In Moldova's Economy - Economic Growth

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Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment the market just yet. One of the factors has been the difficulty of finding domestic product sources that meet the quality standards. With their growing share of the market, supermarkets are increasing their influence over national and international supply chains, heightening competition on price and quality. They also demand all-season supply, and rely increasingly on cross-border sourcing. More importantly, they tend to build exclusive supply chains through a system of “preferred suppliers”—producers able to meet quality and other standards on a consistent basis. The standards established by the supermarkets—that is, the private sector—are becoming more stringent than those promulgated by the public sector, largely in reaction to a series of incidents and affairs that have caused public uncertainty and discomfort, such as the incidence of mad cow disease (BSE) or the occurrence of diesel fuel in palm oil, listeria in cheese, salmonella and antibiotics in poultry, or e-coli in meat. European grocery chains responded strongly to growing consumer concerns about the food supply system, and initiated a strict system of self-appraisal and outside certification known as EUREPGAP (Euro Retailer Produce Working Group adopting standards of Good Agricultural Practices). EUREPGAP’s food safety requirements include: The product must be traceable to the registered farm where it was grown. Purchased nursery stock must be accompanied by an officially recognized plant health certification, and quality guarantees must be documented. A recording system must be established for each field, orchard, or greenhouse. Chemicals banned in the European Union must not be used on crops destined for sale in the EU. Each certified producer must complete one internal audit year, which tests for compliance with EUREPGAP standards, and corrective action must be taken where required. Figure 10: Supermarkets become dominant July 2004 • Draft Page 17
Development Alternatives, Inc. / BIZPRO Moldova Moldova Competitiveness Assessment Meeting these requirements demands a full commitment at the level of the farm, but also the strengthening of the quality assurance infrastructure to conduct audits and provide required certification. Some of Moldova’s exporters are making investments to address these requirements, but where they succeed it is because of their resilience, and not because of a supportive environment. The pressure to conform will increase as market architectures in Moldova’s traditional export markets evolve toward the modern standard. One of the key points here for the future competitiveness of Moldova’s agricultural sector is the need to comply. There is no longer any choice. As the case of wine demonstrates most vividly, even Moldova’s traditional markets are changing, and are changing rapidly, and the country’s producers and its physical and institutional infrastructure must adapt. Trade Patterns Traditionally, Moldova has been an important source of agricultural products for the countries of the former Soviet Union. However, agriculture generally has not fared well since independence, following the collapse of traditional markets and market linkages, and severe disruptions on the supply side as the approach to land privatization resulted in fragmented holdings. The 1998 ruble crisis in Russia resulted not only in a sharp contraction of total imports, it also hit imports from Moldova disproportionately hard. Moldova’s share in total agricultural imports to Russia dropped from 4.0 percent to 2.6 percent. Since then, this market share has basically stayed the same, as two major trends balanced each other—Moldova’s exporters were losing market share in a growing market (wine) and were gaining penetration in another growing market (apples and other fruit), the latter driven in part by a bumper crop in 2003. The biggest gains in terms of agricultural market share in Russia since 1999 have been recorded by the new EU members in Central and Eastern Europe and the Baltics. The market share of the new EU members increased at an average of 4.8 percent per year, while that of the “old EU” actually dropped. Other suppliers, mostly from Asia and the Americas, have registered smaller gains, on average by 1.8 percent per year. In the EU, the analysis above shows that Moldova’s exporters have been losing market share in a (relatively) shrinking market for fruit juices—a “dark star.” At the same time, they have been gaining in the market for shelled walnuts, a product that builds on two of the country’s current competitive advantages, soil/climate and low-cost labor. Fresh Apples and Apple Juice Figure 11 tells the story of Moldovan exports of fresh apples to Russia. Traditionally, fresh apples were a major export to the CIS countries for Moldova, but the fragmentation of orchards as a consequence of land privatization, and the near-collapse of the Russian market in the wake of the 1998 financial crisis resulted in a sharp contraction in total production and exports. Other July 2004 • Draft Page 18
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