Wine Sector Moldova MK Analysis

GOVERNMENT OF REPUBLIC OF MOLDOVA
MCA MOLDOVA TEAM
SECTOR ANALYSIS REPORT

FINAL DRAFT
CHISINAU, JULY 2007
FINAL DRAFT, August 15, 2007
Contents
ACRONYMS AND ABBREVIATIONS 3

ACKNOWLEDGEMENTS . 4
INTRODUCTION .. 5
EXECUTIVE SUMMARY .. 6
METHODOLOGY 12
CHAPTER 1. INITIAL SECTOR ANALYSIS .. 13
1.1. CROSS-SECTOR OVERVIEW .. 13
1.2. SECTOR-SPECIFIC ANALYSIS 17
1.2.1. AGRICULTURE AND AGRO-PROCESSING .... 17
1.2.2. INDUSTRY .. 22
1.2.3. SERVICES ... 27
1.3. SELECTION OF SECTORS FOR FURTHER ANALYSIS ... 30
CHAPTER 2. IN-DEPTH SECTOR ANALYSIS .. 34
2.1. FRUIT & VEGETABLE SECTOR . 34
2.2. WINE SECTOR . 55
2.3. TRANSPORTATION SECTOR . 81
ANNEXES .100
ACRONYMS AND ABBREVIATIONS

AAMV
ACSA
ADP
API
BSTDB
CIS
EBRD
EU
FDI
FIA
F&V
FVI
GAP
GAPP
GDP
GIP
Ha
HIC
HVPP
IFAD
IFC
IFI
ITC
LE
LIC
MAFI
MCA
MCC
MDL
MET
MIEPO
MSS
NBM
NBS
NCVQAP
NIVW
NIS
NSAPC
OECD
PFCP
RCA
RM
RISP
SIAPS
SME
SPS
STI
USAID
USD
WB
WDI
- Agro-industrial Agency Moldova-Vin

- Agency for Consulting and Training in Agriculture
- Agribusiness Development Project
- Agro Processing Industry
- Black Sea Trade and Development Bank
- Community of Independent States
- European Bank for Reconstruction and Development
- European Union
- Foreign Direct Investment
- Foreign Investors Association
- Fruit and Vegetables
- Fruit and Vegetable Industry
- Gross Agricultural Product
Gross Agro-Processing Product
- Gross Domestic Product
- Gross Industrial Product
- hectare [unit of land]
- High Income Countries
- High Value Processed Products
- International Fund for Agriculture Development
- International Finance Corporation
- International Financial Institutions
- International Trade Centre
- Large Enterprises
- Low Income Countries
- Ministry of Agriculture and Food Industry
- Millennium Challenge Account
- Millennium Challenge Corporation
- Moldovan Lei (national currency)
- Ministry of Economy and Trade
- Moldovan Investment and Export Promotion Organization
- Metrology and Standardization Service
- National Bank of Moldova
- National Bureau of Statistics
- National Center for Verification of the Quality of Alcoholic Products
- National Institute for Viticulture and Wine-making
- Newly Independent States
- National System of Assurance of Product Conformity
- Organization for Economic Cooperation and Development
- Private Farmer Commercialization Program
- Revealed Comparative Advantage
- Republic of Moldova
- Rural Support and Services Project
- State Inspectorate on Supervision of Alcohol Production
- Small and Medium Enterprises
- Sanitary and Phyto-Sanitary
- State Tax Inspectorate
US Agency for International Development
- US dollar
- World Bank
- World Development Indicators
ACKNOWLEDGMENTS
This report was prepared by MCA Moldova Sector Analysis Team comprising Eugen Hristev,
Felicia Pricop and Sergiu Luchita. In particular, Eugen Hristev was responsible for services sector
analysis, Felicia Pricop managed the agricultural sector analysis and Sergiu Luchita dealt with the
industry analysis. The report was prepared under the supervision of MCA Moldova Team Director
Valentina Badrajan. Careful review and valuable comments on the report had been provided by the
First Deputy Prime Minister Zinaida Greceanii. The report development process was guided by
MCC Sector Analysis Expert Jason Bauer who provided valuable feedback, comments and overall
support and assistance to the study team.
The team is grateful to MCA Moldova Constraints Analysis Team (comprising Valentin Bozu, Iurie
Gotisan and Dumitru Caragia), Natalia Catrinescu (Head of the Policy Division, MET), as well as to
Alexandru Culiuc (PhD student at Harvard Business School) for their useful comments and
suggestions on the report. In addition, we would like to thank all of those in the private sector, civil
society and donor projects who gave generously of their time and information, thus supporting us in
conducting the in-depth sector analyses. Last but not least, special thanks to the National Bureau of
Statistics and other state institutions, including MIEPO, MAFI, MET, AAMV for their important
support with up-to-date statistical and sector-specific data and information.
INTRODUCTION
The Sector Analysis (together with the Constraints Analysis) is a component part of the preliminary
economic analysis aimed at providing a basis for broad consultations with constituents, and thus
supporting and guiding the proposal development process. The Sector Analysis aims at identifying
the opportunities for and impediments to growth that exist in key economic sectors with a view
toward establishing suitable investments for government to make in order to support private sector
investment.
This study has a dual aim. First, it provides an overview of the economy as a whole and analyses the
relative positioning of productive sectors agriculture, industry and services - with a view towards
establishing the role each sector has to play in countrys economic performance, on one side, and
contribution to poverty reduction, on the other side. Second, and this comes largely as a result of the
initial assessment of major sectors, the study focuses on a limited number of sub-sectors that have
been identified as potential drivers of growth with greatest impact on country-wide poverty
reduction. The selected sub-sectors are then studied in depth with a view toward identifying the
critical constraints inhibiting their growth and development, and testing these constraints against the
macro-level constraints (identified by the Constraints Analysis).
The study is organized in two chapters. Chapter 1 presents the initial sector analysis that includes a
cross sector overview, followed by a sector-specific analysis. The cross-sector overview provides a
perspective on Moldovas development pattern so far in connection to poverty reduction efforts, and
focuses on establishing the role of productive sectors in this framework. The sector-specific analysis
is then meant to take a closer look at each productive sector of the economy in order to diagnose its
current development status and look at sub-sectors that shape each sector towards assessing their
contribution to sectors performance and growth perspectives. This analysis, complemented by a set
of sub-sector quantitative indicators, lies the foundation for selection of sub-sectors for further indepth analysis presented in Chapter 2.
Chapter 2 provides a detailed analysis of the three selected sub-sectors by use of a comprehensive
framework, called the Competitive Diamond, assessing each sector from four perspectives that are
complementary to each other (i) factor conditions, (ii) sector structure, strategy and rivalry, (iii)
demand conditions, and (iv) related industries and supporting institutions. This inclusive approach
has allowed to determine the current state of the sectors, identify sector-specific competitive
advantages, both current and potential, as well as reveal the existing constraints, whose removal
would allow sectors, and ultimately the economy as a whole, to develop and grow in a sustainable
manner. The sector-specific constraints unveiled by this analysis represent a key element connecting
the Sector Analysis with the Constraints Analysis. Weighting the sector-specific constraints against
the macro constraints is a useful exercise in assessing as to how binding the macro constraints are
manifested with respect to the selected sectors.
The findings and conclusions of the Sector Analysis in conjunction with those of the Constraints
Analysis provide a solid basis for further consultations with the constituents to be carried out by the
MCA Team. The analyzed sectors should not be regarded as indicative areas of further MCC
funding, but rather as preliminary research providing baseline information for the proposal
development process that is based on broad consultations.
EXECUTIVE SUMMARY
1. Moldova resumed growth in 2000 and has firmly maintained it over the following years.
Continued economic growth has been a major driver of poverty reduction. Throughout the
period 2000 and 2006 the economy grew by a total of 41 percent, with average annual growth
rates of 5.5 percent. Concomitantly, poverty rates strongly declined from over 70% in 1999 to
less than 30% in 2005. Presently, poverty in Moldova is lowest in urban areas (14.7%) and
highest in small towns (48.55) and rural areas (42.5%). The development of services and industry
preponderantly in urban areas and lack of non-agricultural activities in rural areas, coupled with
low productivity and profitability of farming are the main reasons for relatively high poverty
rates in rural areas. Landless inhabitants of small towns, where industry is poorly functioning and
demand for services is limited, find themselves in the worst-off situation. As a result, the out-ofcountry migration has been the alternative for most of the rural and small-town workers over the
last decade.
2. The structure of Moldovas economy has been evolving towards a rapidly increasing
services sector, relatively stable industrial sector and declining agriculture (in terms of their
shares in GDP). Presently services account for 56% in GDP, industry 14% and agriculture 15%. In a global perspective, Moldovas economic structure appears in a transitional phase,
currently close to the structure of low income countries, but showing a firm movement in the
right direction. The share of services in GDP has already reached (or even exceeded) the regional
average, however, Moldova lags behind most countries in the region with a large agricultural
share and a relatively low industrial share.
3. The resumption of economic growth that began in 2000 has not been accompanied by an
increase in total employment. Instead, total employment in Moldova has declined by 17 percent
during 2000-2006. Agriculture released most of the labor (approximately 45% in seven years),
industrial labor force remained steady over this period, while fast growing services increased
their labor force by 23%. Overall, job destruction exceeded job creation in Moldova, which is a
phenomenon specific to transition economies when the pressure of market forces drives
enterprises to get rid of excess labor inherited from central planning.
4. This, in turn, has allowed increases of labor productivity, which differ greatly across
economic sectors. The services sector that generates 56% of GDP employs only 33% of labor
force, while agriculture that produces 15% of GDP engages over 34% of labor force. As a result,
the services sector indicates a labor productivity that is 1.5 times higher than that in industry and
4 times higher than the productivity level in agriculture1.
5. Greater productivity should be achieved in the context of systems building for a
competitive, market oriented economy. Productivity gains of the recent past, based primarily
on labor shedding and factor reallocation, cannot be sustained over the long run. Therefore
further increases in productivity should mainly come from enhanced investment and innovation.
Concerted effort to develop the rural economy in particular seems to have the greatest impact on
poverty reduction. Improved incentives for investment, both local and foreign, are a precondition
to this development.
6. The increasing negative trade balance drags down Moldovas economic growth. The gap
between exports and imports of goods has been constantly growing and reached its maximum in
2006 (approximately 1.5 billion USD). The strong import growth has been determined by the
remittance-driven increase in domestic consumption (that could not be satisfied by local
1
GDP per employee accounts for USD 4500 in services, USD 3000 in industry and USD 1200 in agriculture.
production), as well as by growing energy prices. The growth of exports, on the other hand, has
been constrained by low diversification of both products and markets. The market and
commodity composition of Moldovas exports increases countrys vulnerability to external
shocks, and the 2006 wine crisis is a good proof to this.
Agro-food products account for approximately half of total exports, and industrial (non-ag)
products take the other half. Presently Moldova is a net exporter of agro-food products and a net
importer of industrial products. However, over the last few years the net trade in agro-food
products has been diminishing, while the negative net trade in non-agricultural products has
remained constant (at minus 60%), which is an alarming indicator signaling urgent action needed
to improve and strengthen exports, but also improve local production to substitute for a part of
imports.
7. Supporting Moldovas transition towards a diversified and export-oriented economy would
require building on countrys comparative advantages (in agriculture and agri-business) as
well as grasping prospective market opportunities (in services). Poverty reduction efforts are
believed to have broader country-wide effects with emphasis on rural areas if the focus is put on:
(i) Spurring agricultural growth and productivity, this to be further supported by a
(ii) Dynamic and expanding agro-processing industry, which in addition to adding value
to agricultural produce, also provides additional non-farm employment opportunities
in rural areas and small towns.
(iii) Growing services should complement this process as active absorbers of labor, while
enhanced business activity coupled with investments in rural infrastructure would give
a rural direction to the expansion of the services sector.
8. The model presented above, complemented by sub-sector based analysis (both quantitative and
qualitative), has allowed to narrow down the choice of sub-sectors and led to the selection of the
following three sub-sectors that are seen as potential drivers of growth with the highest impact on
poverty reduction in Moldova. These are:

fruits and vegetables, both fresh and processed;

wine;
transportation services
The diamond approach applied to analyzing the three sectors has revealed the current status of
these sectors, their comparative advantages, both current and potential, as well as the constraints
inhibiting their growth in an attempt to separate between constraints that are best addressed by
the private sector and those to be dealt with by the state.
9.
FRUIT & VEGETABLES
Poverty reduction efforts in rural area and small towns will be

best rewarded through the sustainable development and growth of the fruit and vegetable
sector, both fresh and processed. At the moment, significant untapped potential lies ahead the
Moldovan F&V sector. A brief snapshot of the sector is presented in Figure 1 below, where the
major identified constraints are highlighted in red. Concerted effort to enhance competitiveness
of Moldovan F&V products, both fresh and processed, will ensure stable and expanding markets
to domestic producers and processors, thus transforming Moldovan agriculture into a highly
productive and profitable business.
Both fresh and processed sectors critically depend upon modernization of primary
agriculture. The under-developed fresh sector could quickly catch up and achieve international
competitiveness if investments in innovative agricultural technologies and production techniques
7
(intensive orchards and vineyards, greenhouses, new high-yielding varieties), irrigation

infrastructure and marketing infrastructure (cold storages, packing houses, etc.) occur at an
accelerated pace. The processing sector, much more advanced in its development as compared to
the fresh sector, is currently a significant player on export markets and has excellent opportunities
for expanding its presence there if three major areas of concern are properly ensured: adequate
raw material supply, availability of skilled (and young!) labor force, and development of new
products with high market demand.
10.
The four major constraints of the Fruit and Vegetable Sector are human capital,
market infrastructure, innovation and competitiveness, as well as investment and business
climate. Accelerated investment flows, local but especially foreign, could rather quickly spur
innovation and enhance competitiveness by bringing the required know-how, building new skills,
modernizing market infrastructure (including irrigation) and driving quality standards while
seeking to respond to the demands of international markets. Therefore, removing obstacles to
investments and improving the domestic business environment is a key pre-condition.
11.
Most of the identified constraints of the Fruit & Vegetable Sector can and should be
addressed by the Government. The majority requires insignificant financial resources but
essential political will in form of policy actions and institutional rearrangements. Key
constraints that require large financial resources on behalf of the state are irrigation
infrastructure and standards harmonization. Market infrastructure (cold stores, packing
houses) and part of irrigation infrastructure (i.e. on-farm irrigation equipment), on the
other side, should be private-led investment initiatives. The state, preferably in
collaboration with donors, should support and encourage these types of investments.
Successful business models are critically important acting as effective catalysts for
investments and triggers for the mass replication of success stories. This is the challenge
that presently lies ahead the Moldovan fruit and vegetable sector.
WINE
12.
Diversification of export markets, getting closer to consumer needs and
improving the competitiveness might lead to sustainable development of the wine sector.
Orientation to high value markets and acceptance into large markets chains, producing of wine
according to consumers sophisticated preferences and its efficient promotion even on traditional
markets are immense challenges and in the same time opportunities of local winemakers.
Moldovan wines might become more competitive within the tough competition on external
markets, if the offered quality would be the best in the target price segment. Additional
investments are needed for assuring high quality of grapes and modernization of production and
storing processes and equipment, which would decrease production costs and increase the quality
of wines. The effect of these strategic actions may be stimulated and multiplied trough liquidation
of identified major constraints.
13.
The most important constraints within the wine sector are of human capital, financial
capital, market infrastructure, innovations and competitiveness, and business climate.
Specification of constraints might be seen into Fig.1 below, highlighted in red. The wine sector
analysis results are different to some extent from those of the constraints analysis. This is
due to microeconomic character of the sector study versus the macroeconomic character of the
constraints analysis. Thus, results coincide to financial capital (high inflation generates high
credit costs) and business climate (licenses, marks, certificates, credibility in justice) and do not
coincide to human capital, infrastructure (road quality and power losses are not significant to
wine enterprises) and innovation and competitiveness.
14.
The Government could figure out a major part of constraints identified with different
costs and terms. Thus, the most expensive would be the following activities: (a) strengthening
institutional capacities of the NCVQAP or even of some more labs throughout Moldova (short
term), (b) adjustment of standards to EU/other states requirements (short/medium term), and (c)
modernization/actualization of technological instructions system (short/medium term). Other
constraints the Government would be dealing with do not need significant resources and should
be liquidated trough specific decisions and sector policy reformulations. Diminishing the
inflation which would lead to decrease of the borrowed capital, represents a major concern of the
Government, NBM and IMF. Other constraints could be figured out by the private business
efforts.
15.
Sustainable development of the wine sector can contribute to rural poverty reduction.
Enterprises will continue purchasing grapes from companies and population in the next 5-7 years.
In the meantime, selection of suppliers will take place depending on supplied quality and
demanded price, and which would determine a more efficient co-operation with them. This
process will be stimulated by the tendency of planting own vineyards by the wine enterprises.
The most probably is that a part of population could not sell grapes anymore if they do not
cooperate in order to increase quality and optimize costs. In the meantime, development of
enterprises would lead to new jobs both unqualified (processing of vineyards and qualified (wine
factories). The demand could be covered by the ex-grape suppliers labor force.
TRANSPORTATION
16.
Transportation sector plays a very important role for the
national economy, however, due to identified constrains, its development is refrained, as a
result offering an inferior logistics and increased transportation costs for the goods moved
within and/or out of Moldova. Currently only road and railway modes of transportation may
offer large scale operations in Moldova and be competitive at the regional level. Therefore, clear
establishment of the priorities for the revival and development of the transportation sub-sectors is
extremely important provided limited financial resources.
17.
Taking into account the geographical area of the Republic of Moldova, probably there
is no other feasible alternative to the road transportation, fact which has been confirmed by
the evolution of the transportation sector in Moldova in the recent years. In most of the
European countries, 85% of the freight (in terms of weight) is moved by road transport and is
carried within the 150 km distance. Up to 500 km of distance, 97% of the entire freight weight is
transported by the road transport. It is proved that at such distances there is no alternatives in
terms of efficiency and costs. 90% (in value terms) and 80% (in terms of weight) of freight is
transported on roads worldwide.
18.
Identified constrains, which refrain the development of the transportation sector, may
be divided in two groups: of internal and external nature. The first one includes critical
constrains such as the quality of the road and railway infrastructure and business climate,
while the latter includes the serious disparity for transit needs between Moldovan
transportation sector via neighbouring countries and their need to transit Moldovas
territory, which is much smaller. Infrastructure constrains represent issues of national
importance, with financial tags well over current means of the state or local budgets. On the other
hand, improvement of the business climate needs a more active implication from the part of the
government in its endeavours to adjust to the European standards.
Figure 1. Competitive Diamond Analysis for the three sectors

FACTOR CONDITIONS
STRUCTURE, STRATEGY
& RIVALRY
DEMAND CONDITIONS
RELATED INDUSTRIES
& SUPPORTING
INSTITUTIONS
FRUIT & VEGETABLES

Favorable natural
resource: rich soils and
warm climate adequate
for production of
temperate F&V.
Scarce human
resources, both skilled
and unskilled. Lack of
young skilled labor force
in small towns.
Capital resources
generally available upon
collateral availability.
Long-term loans are
scarce.
Infrastructure deficiencies: inadequate water
quality additional
costs; irrigation is largely
unavailable, but highly
required; poor road
condition. Electricity,
gas and communications
are satisfactory.
Fresh sector: vegetable

production needs
investments in irrigation
and greenhouses; fruit
production investment
in cold storages and
packing houses.
Processing sector: two
major concerns - secure
raw material supply and
expanding markets.
Competition within the
sector is regarded as
open and healthy.
Minor rent-seeking
actions of state bodies
increase costs of doing
business.
FDI is relatively low
but increasing and highly
valued. Restriction on ag
land ownership is a
constraint to FDI.
World markets for

F&V show very
favorable demand trends.
Importers (both EU and
CIS) demand high and
consistent product
quality, steady & timely
supply, complete product
specifications, highquality packaging, Eurep
GAP for fresh and
HACCP for processed
products.
Non-harmonized
standards, weak labs and
certification bodies, and
lack of EU accreditation
are major constraints to
market expansion into
EU and high-end CIS.
Active participation in
regional exhibitions is an
important learning tool.
Achieving reliable raw

material supply is a big
task that processors
handle through both
cooperation with farmers
and expansion of own
production.
Ag inputs are widely
available, but plant
variety choice is limited.
Locally produced
packaging materials do
not fully meet demand.
Imported machinery
and equipment, weak
competition.
Weak research and
education institutions,
not connected to needs of
market participants.
Unorganised private/
public dialogue.
WINE
Favorable climate, soil.
Lack of non-qualified
labor force in rural areas.
Education and scientific
research are overrun and
not connected to the
business.
Credit resources exist.
There are no problems
with the collateral.
The cost of resources is
high. Insufficient credits
per 10+ years term.
Leasing is
underdeveloped.
Infrastructure is
satisfactory. Quality of
traffic roads is poor but
not critical.
State excessive role,

with elements of
interference, monopoly
and un-loyal
competition. Presence of
the state in commercial
enterprises capital,
existence of state
enterprises.
Local competition is
considered as calm and
healthy.
Presence of
investments, foreign and
local, is significant, but
insufficient for finalizing
modernization and reequipment.
The opinion on the
Production is mainly
exported to CIS markets.
Excessive dependence
on the market of Russia.
Importers often fix the
prices.
Enterprises diversify
exports, but do not
possess a short/ medium/
long term strategy for
getting out of the crises,
and the export prices
policy is inadequate.
The reduced volume of
the internal market is a
problem, but not critical.
Low capacity of
reorientation to the
preferences of consumers
Vineyards degrade
rapidly and have a low
productivity.
Enterprises plant own
vineyards to control
quality and production
costs. The quality of
grapes acquired from the
population is
unsatisfactory.
Certain raw materials
are produced locally;
auxiliary materials and
winemaking equipment
are imported.
Competition in the
domain is healthy.
Efficient cooperation
between winemaking
10
Roads quality affects

the wine-making
tourism.
The risk exists of
blocking railways access
to CIS markets.
Fiscal and customs
legislation is acceptable;
Lack of trust in the
judiciary system.
State trademark, add-al
investments and
expenditures needed.
Inadequate
technological
instructions.
Cooperation with
foreign experts, chronic
dependence on them.
restriction of
procurement of the
agriculture terrene by
foreign investors is
contradictory.
on the high value

markets. The production
of wines in the New
World style is
necessary.
The standardization
system is adjusted to the
requirements of Russia,
and does not correspond
to the EU requirements.
Weak institutional
capacities of the
NCVQAP and high
certification costs.
High cost of ISO
implementation.
enterprises within
associations is lacking.
The efforts of wine
business associations and
of the Government for
promoting wines and the
country image are
insufficient.
Enterprises do not
insure vineyards. The
Government grants
support.
Participation to
exhibitions, forums,
trainings and other
events contributes to
enterprises development
and promotion on other
markets.
TRANSPORTATION
Lack of high speed
highways of national
importance;
Weak correlation
between the
development of road
and railway infrastr.
with the market
demand and strategy
for the development
of the transp. sector;
Development of the
European transport
corridor IX for the
transit goods and 4
major European
highways passing
through Moldova
Qualified but
insufficient labour
force;
Aging fleet and
insufficient level of
investments for its
renewal;
Lack of specialized
road transportation,
such as refrigerators
for the transportation
of agricultural products
Increased
competitiveness both on
internal and external
markets for road
transportation;
Dominant position of
the single state operator
in the railways
transportation;
Tariff regulations for
passengers
transportation;
Lack of fiscal
incentives for the
development of the
transportation sector;
Non-harmonized
legislation with the EU
norms in the
transportation area;
Technical and logistical
barriers for the border
crossing procedures.
Increased volume of
trade both on internal
market and cross-border
one;
Increased amount of
goods transported in
transit;
New EU environmental
and security standards ;
Regional development
programs;
Demographic factors
for the passengers
transportation;
Development of the
economic sectors
dependent on the
transport services;
Strong nongovernmental sector and
associations in the
transport sector.
Auxiliary and
supporting services for
the road and air
transportation, but lack
of such for the railway
stock;
Emerging development stage of the
financial sector,
including financial
leasing;
Emerging state of the
insurance sector;
Dependence of the
other sectors of the
national economy on
the transportation
sector.
11
METHODOLOGY
The methodology utilized for carrying out this study has been based on the Guidelines for
Conducting Sector Analysis provided by Millennium Challenge Corporation. The initial sector
analysis (presented in Chapter 1) has extensively used data of the National Bureau of Statistics,
which served as the major source of raw country-level data for this study2. For benchmarking and
comparison purposes, relevant statistical data on other countries have been collected from available
Internet resources, these including World Development Indicators of the World Bank and databases
of the International Trade Center. Important qualitative data and information has been extracted
from various analytical reports, which had been referenced in footnotes across this report.
A set of quantitative indicators has been identified to support and streamline the selection of most
prospective sub-sectors that are seen as potential drivers of growth in Moldova. These indicators are
particularly useful as a tool for ranking sub-sectors on the basis of hard quantitative evidence. More
specifically, the indicators have been selected to measure sector-specific contributions to the
economy, the performance of sectors domestically, including some productivity indicators, the
competitive export performance in target markets, as well as some indications of the international
market demand that gives a global perspective to sectors/ products under review (see Annex 6 and
Annex 11).
This quantitative analysis should be regarded as complementary to the qualitative analysis
performed in Chapter 1 (sections 1.1 and 1.2) and has been utilized to narrow down the choice of
sub-sectors in the light of wider macroeconomic perspectives to growth and poverty reduction. This
integrated approach has allowed make informed decisions as to which productive sectors of the
Moldovan economy have the potential to be drivers of growth with the greatest impact on countrywide poverty reduction.
The in-depth analysis of selected sub-sectors presented in Chapter 2 has been guided by the
Competitive Diamond3 methodology provided in MCC Guidelines for Conducting Sector Analysis.
The analysis has been based on the results of surveys carried out with stakeholders of the selected
sectors. Stakeholders included primarily the private sector, but also representatives of sector
associations, donor assistance programs as well as government institutions. Individual interviews
held with sector stakeholders had been guided by a comprehensive questionnaire developed to cover
as fully as possible the Competitive Diamond Framework. The full list of interviewees for the indepth sector analysis is provided in Annex A.
Survey findings had been complemented with statistical and export data on selected sectors obtained
from the National Bureau of Statistics and sector related state institutions (MAFI, MET, Moldova
Vin, MIEPO). In addition, world trade data and market information had been collected from the ITC
Product Map (available on-line at www.intracen.org, www.p-maps.org), USAID/ADP market
studies (www.export.acsa.md) and CBI market surveys (www.cbi.nl) in order to get a picture of
international and country-specific demand trends for the selected products.
It is important to note that country-level data provided by NBS do not include Transnistria region.
The Competitive Diamond Framework was developed by Michael Porter at Harvard Business School (see The
Competitive Advantage of Nations by M. Porter, New York: the Free Press, 1990).
12
CHAPTER 1. INITIAL SECTOR ANALYSIS

1.1.CROSS-SECTOR OVERVIEW
19.
Moldova resumed growth in 2000 and has firmly maintained it over the following
years. Throughout the period 2000 and 2006 the economy grew by a total of 41 percent, with
average annual growth rates of 5.5 percent. In 2006 the growth rate diminished to 4% that was
due to a number of negative factors, mainly external, whose combined effect has had an adverse
effect on the economys output and external balance. These include the prohibition of important
Moldovan exports by the Russian Federation and difficulties to access other markets, doubling of
prices for energy resources imported from Russia, as well as significant increases in the
international energy prices.
20.
Economic growth has been a major driver of poverty reduction, but 2005 poverty
figures indicate that this is not longer the case. The latest poverty update4 reveals that in spite
of continued economic growth, the poverty rate took an upward turn in 2005 returning to its 2003
level (see Figure 1), thus suggesting that economic growth is no longer reducing poverty. It is
important to note, however, that so far this is just one data point and not a trend yet, thus a fragile
base for firm conclusions.
Poverty Rate, %
Real GDP growth, %
Most recent (2005) by-region indicators of Figure 1. GDP Growth versus Poverty rate
10
80
poverty rate reveal that poverty is highest in
70
8
small towns (48.5%) and rural areas (42.5%),
60
and lowest in urban areas (14.7%). While in
6
50
urban area poverty rates continued to decline in
4
40
2005, in small towns the poverty situation
2
30
slightly worsened as compared to the previous
0
20
1999
2000
2001
2002
2003
2004
2005
year (by 3 percentage points). The poverty drift
-2
10
in rural areas has been even worse showing a
-4
0
firm negative trend the second year in a row:
GDP growth rate
Poverty rate
from 35.7% in 2003 the poverty rate rose to
37.1% in 2004 and expanded even more in 2005 Source: Moldova: Poverty Update, World Bank Report
reaching 42.5%. Although still lower than in no. 35618-MD, June 2006
small towns, the poverty rate in rural areas seems
to be steadily sliding in that direction, with the gap between small towns and rural areas
diminishing from 14% in 2003 to only 6% in 2005 (see Annex 1).
21.
The poverty in Moldova has a rural face, while agriculture fails to continue providing a
safety net out of poverty. This was confirmed by another finding of the latest poverty update,
according to which farmers were the ones most hit by the poverty rate increases, followed by the
group of agricultural employees and pensioners (Annex 1). Worsening incomes in agriculture are
connected to the evolution of relative prices, which is deep rooted in sectors low productivity
and weak market linkages (see more discussion on this in section 1.2.1). The development of
services and industry preponderantly in urban areas and lack of non-agricultural activities in rural
areas, coupled with low productivity and profitability of farming are the main reasons for these
negative developments. Landless inhabitants of small towns, where industry is poorly functioning
and demand for services is limited, find themselves in the worst-off situation. As a result, out-of4
Moldova: Poverty Update, World Bank Report no. 35618-MD, June 2006.
13
country migration has been the alternative for most of the rural and small-town workers over the
last decade.
percent of GDP
22.
The structure of Moldovas economy Figure 2. GDP Structure by countries, 2005
has been evolving towards a rapidly
100
increasing services sector, relatively
80
stable industrial sector and declining
60
agriculture (in terms of their shares in
40
GDP). In a global perspective, Moldovas
economic structure appears in a transitional
20
phase, currently close to the structure of
0
low income countries, but showing a
LIC*
MD
ARM GEO KYR UKR ROM HUN HIC*
movement in the right direction (Figure 2).
Agriculture
Industry
Services+
The share of services in GDP has already Source: WB/WDI
reached (or even exceeded) the regional [* LIC Low Income Countries; HIC High Income Countries]
average, however, Moldova lags behind
most countries in the region with a large agricultural share and a relatively low industrial share.
In spite of significant shrinking of both agricultural and industrial outputs during the 1990s, both
sectors began to recover starting in 2000. Throughout 2000-2006 the industrial sector grew by
approximately 8% per annum, and its cumulative growth accounted for as much as 56% over the
seven-year period. The performance of agriculture, however, has continued to be poor and highly
unstable: agricultural output grew by less than 10% in seven years (2000-2006). Year 2006 has
been marked with a decline in both industrial and agricultural sectors. The latter was determined
by unfavorable weather conditions and the former by the crisis of the wine sector (caused by the
closure of the Russian market).
23.
The resumption of economic growth that began in 2000 has not been accompanied by
an increase in total employment. Instead, total employment in Moldova has declined by 17
percent during 2000-2006. Agriculture released most of the labor (approximately 45% in seven
years), industrial labor force remained steady over this period, while fast growing services
increased their labor force by 23% (Annex 1). Overall, job destruction exceeded job creation in
Moldova, which is a phenomenon specific to transition economies when the pressure of market
forces drives enterprises to get rid of excess labor inherited from central planning. This, in turn,
has allowed increases of labor productivity.
24.
The distribution of labor force by economic sector is not proportional to sectors share
in GDP, suggesting highly contrasting productivities across sectors. Figures 3 and 45 below
clearly show these disparities. The services sector that generates 56% of GDP employs only 33%
of labor force, while agriculture that produces 15% of GDP engages over 34% of labor force. As
a result, the services sector indicates a labor productivity that is 1.5 times higher than that in
industry and 4 times higher than the productivity level in agriculture (see data in Annex 1).
Unless otherwise indicated, the source of data utilized in this report is the National Statistical Bureau of R.M.
14
Figure 4. Sectors share in employment

100
80
80
percent of total empl
percent of GDP
Figure 3. Sectors share in GDP

100
60
40
20
0
2000
60
40
20
0
2001
2002
2003
Agriculture
2004
Industry
2005
2006
2000
2001
Serv ices
2002
2003
Agriculture
2004
Industry
2005
2006
Serv ices
MDL [nominal terms]
25.
Low wages in agriculture continue to push away labor, which is attracted by higher
wages in services and industry, but even more so by better income opportunities available
abroad (Figure 5). Year 2006 has marked the second round of ag labor force downsizing (by
approximately 100,000 people) that partly Figure 5. Average monthly wage by sector
dropped out of the domestic labor force
2500
(migrants) and partly have been absorbed by
2000
the growing services sector (see Annex 1).
1500
This also means a movement out of the rural
zone into both the urban areas and out of
1000
country. The rapid growth of wages on the
500
domestic market has been driven by this
0
2000
2001
2002
2003
2004
2005
2006
migration phenomenon that lead to a great
inflow of remittances into the country. The
Economy-wide
Agriculture
Industry
Services
ability of Moldovan workers to move abroad at
relatively low costs and get higher earnings has
put an upward pressure on wages in the domestic labor market.
percent of total investments
26.
Increasing investments are driven by rapidly growing domestic consumption and are
therefore concentrated in services, while investments in the two productive sectors,
agriculture and industry, are rather stagnating. Fixed capital formation has remained modest
in Moldova, averaging at 15 percent of GDP Figure 6. Fixed capital investments by sector
over the period 2000 through 2006. The over100
90
time trend is however encouraging: this share
80
has enhanced from 11% in 2000 (or 140 million
70
USD) up to 25% in 2006 (or 830 million USD).
60
50
International benchmarking suggests that the
40
current investment level in Moldova compares
30
well to other countries in the region: the average20
performing
OECD
economies
register
10
0
investment rates between 20-25% of GDP, while
2000
2001
2002
2003
2004
2005
2006
investment rates for the East-Asian miracle
Agriculture Agro-proc Ind Industry other Serv ices
economies reach an average of 30 percent of
6
GDP .
Source of information: World Bank Report Moldova: Opportunities for Accelerated Growth, A Country Economic
Memorandum for the Republic of Moldova, Report No. 32876-MD, September 9, 2005.
15
The services sector is the absolute leader attracting a 63% share of total investments in fixed
capital (see Figure 6 and Annex 1). In 2006 investments in transportations and communications,
real estate transactions and trade have soared by almost doubling as compared to 2005 level.
Agriculture, on the other side, appears to be largely and persistently avoided by investors
attracting a mere 5% of total investments. Agro-processing seems somewhat more interesting in
this respect with an average annual share of 14%, though decreasing over the last years. It
appears that quantity improvements have not yet been accompanied by the necessary quality
improvements of investments.
27.
The increasing negative trade balance drags down Moldovas economic growth. The
gap between exports and imports of goods has been constantly growing and reached its maximum
in 2006 (see Figure 7). The strong import growth has been determined by the remittance-driven
increase in domestic consumption (that could not be satisfied by local production), as well as by
growing energy prices. The growth of exports, on the other hand, has been constrained by low
diversification of both products and markets. The market and commodity composition of
Moldovas exports increases countrys vulnerability to external shocks, and the 2006 wine crisis
is a good proof to this.
Figure 8. Foreign Trade in Services
0%
600
0%
2500
-10%
500
-2%
400
-4%
300
-6%
200
-8%
-10%
2000
-20%
1500
-30%
1000
million USD
million USD
Figure 7. Foreign Trade in goods

3000
500
-40%
100
-50%
2000
2001
2002
2003
2004
2005
2006
-12%
2000
2001
2002
2003
2004
2005
2006
Export of goods
Export of services
Import of goods
Net Trade in goods, %
Import of services
Net Trade in services, %
Presently CIS countries take approximately half of Moldovas exports, followed by EU with 30%
and CEE with 10-12%. Russia is Moldovas key market that captures between 60 and 70% of the
CIS share. The direction of Moldovas trade has been gradually redirecting towards the EU over
the last decade, but this transformation has been rather slow due to the low competitiveness of
Moldovan products in terms of quality, safety, packaging, volumes. The diversification is thus
needed not only to reap more benefit from trade, but also reduce the negative impact of trade
disruptions with CIS countries.
Agro-food products account for approximately half of total exports, and industrial (non-ag)
products take the other half. Presently Moldova is a net exporter of agro-food products and a net
importer of industrial products (see Annex 1). However, over the last few years the net trade in
agro-food products has been diminishing, while the negative net trade in non-agricultural
products has remained constant (at minus 60%7), which is an alarming indicator signaling urgent
action needed to improve and strengthen exports, on one side, and improve local production to
substitute for a part of imports, on the other side.
28.
Moldovas recent development pattern and its impact on poverty has been leading to
the conclusion that further reduction of country-wide poverty should be supported by an
economic growth based on qualitative and sector-wide productivity increases. Productivity
7
Excluding energy resources, the net trade in non-ag products is somewhat higher at minus 50% in 2006.
16
gains of the recent past, based primarily on labor shedding and factor reallocation, cannot be
sustained over the long run. Therefore further increases in productivity should mainly come from
enhanced investment and innovation. It is important that these productivity increases are evenly
distributed across economic sectors so that the existing cross-sectoral gaps diminish, thus
contributing to a widespread reduction of poverty, rural poverty in particular. Greater
productivity should be achieved in the context of systems building for a competitive, market
oriented economy. Concerted effort to develop the rural economy in particular seems to have the
greatest impact on poverty reduction. Improved incentives for investment, both local and foreign,
are a precondition to this development.
1.2.
SECTOR-SPECIFIC ANALYSIS
1.2.1. AGRICULTURE AND AGRO-PROCESSING

29.
Agriculture is one of the largest sectors and has a great contribution to the Moldovan
economy. Agriculture produces 15% of countrys GDP, while it employs as much as 34% of
labor force (see Figure 9). While this is a clear indicator of low labor productivity in agriculture,
it also points out to the scarcity of jobs outside
agriculture and under-development of other sectors, Figure 9. The Importance of Agriculture for the
Moldovan Economy
factors that have been driving the out-of-country
60%
labor migration. The dominance of agriculture in the
50%
40%
Moldovan economy is confirmed by the prevailing
30%
share of agro-food exports at 50-60% of total
20%
10%
exports. This large share is sustained by the export
0%
oriented agro-processing industry, which produces
2000
2001
2002
2003
2004
2005
2006
most of the agro-food exports, adds approximately
Share of agriculture in employ ment
Share of rural population in total
7-8% to GDP and employs around 5% of labor force
Share of agriculture in GDP
(see also Annex 2).
30.
In spite of its large size and major contribution to the economy, the sector exhibits the
highest poverty rates. The latest poverty update has indicated that in 2004 and 2005, while the
poverty rate continued to decline in urban areas, and was relatively stable in small towns, it had
however began to rise in rural areas. (Needless to say, rural population in Moldova is mainly
involved in farming, in the absence of other businesses operating there.) This was reinforced by
the finding that farmers were the ones to be most affected by the poverty rate increase, followed
by the group of agricultural employees and pensioners.
The report points out that the core reason for the fall in farm incomes is the evolution of relative
prices. Moldovan farmers real incomes fell because the prices they received for their products
were flat (or fell) (see Annex 3/T.3.14), while the prices paid for inputs rose. Prices received by
Moldovan farmers had been far below international parity prices. Low farm-gate prices hint that a
relatively small number of purchasers may have relatively strong bargaining power in wholesale
markets where many small farmers sell: this is particularly true for the markets for cereals and
oilseeds. For other commodities, especially fruit and vegetables, the depressed prices may be due
to quality deficiencies, on one side, as well as restrictions on exports to Russia, on the other side.
31.
Increasing poverty and falling incomes in agriculture are connected to sluggish growth
and low productivity. Indeed, since 2000 agriculture has been showing much slower and
unstable growth patterns than the rest of the economy (see Figure 10). The rapidly growing labor
productivity in agriculture has been due to labor outflow and not to efficiency gains, which is
17
confirmed by the low land productivity that has closely followed the GAP growth pattern (Figure
11). The labor productivity growth in agro-processing, on the other hand, has seen a rapid
increase over the last years, while the 2006 downturn was due to the severe wine sector crisis
caused by the sudden closure of the Russian market.
Figure 10. Sector growth rates
Figure 11. Productivity growth rates
190
180
170
160
2000=100%
2000=100%
170
150
130
150
140
130
120
110
110
100
90
90
2000
2001
2002
2003
2004
GDP growth
GAP growth
GAPP growth
2005
2006
2000
2001
2002
2003
2004
2005
2006
Ag Labor prod-ty
Ag Land prod-ty
API Labor prod-ty
32.
The current production structure of the Moldovan agricultural sector reflects its
largely subsistence nature. Climate and high native soil fertility makes Moldova well suited to
growing most temperate fruits and vegetables, potatoes, and cereals. Crops clearly dominate with
a share of 70% in the total agricultural output (see also Annex 3/T.3.3). Livestock inventory is
currently concentrated within the individual sector and has the main purpose of satisfying the onfarm and family needs of rural households, while the surplus produce meat, milk, dairy
products and eggs is usually marketed. The crop sector, on the other side, is dominated by low
value staple crops mainly cereals and oilseeds that have expanded in area due to low input
requirements, extensive on-farm usage and guaranteed markets.
The production of high value crops, such as fruit, vegetables, tobacco, has contracted due to high
production costs and severe lack of financial resources. The deteriorating irrigation infrastructure
(particularly important for vegetables) and ageing low-yielding orchards and vineyards are
important impediments to high value produce growth in Moldova. However, certain
developments of the high value sector do take place in the recent years, such as plantation of new
vineyards and orchards, rehabilitation of some irrigation systems and purchase of new irrigation
equipment. These are still limited investments though that need to expand, grow and develop in
order to have an effect at the macro level.
33.
Production of high-value crops, fruit and vegetables in particular, offers the best
potential for increased income and is thus a route out of
poverty for the rural poor. Statistical data clearly show that the Figure 12. Profitability by crop,
current output per unit of land (i.e. hectare) is highest for fruit and 2006 [MDL per ha]
cereals
1727
vegetables, as well as tobacco (Annex 3/T.3.6). A recent survey
sunflower
1167
of small farms indicates that profitability levels per crop are
sugar beet
3265
highest for irrigated vegetables, as well as fruits (Figure 12). In
tobacco
6388
the same context, an IFAD study8 has concluded that while basic
vegetables [irrigated] 34555
field crops are a recipe for continued poverty, fruits, grapes and
fruits
8884
Source: Survey of small farms, Agrex
vegetables are the most profitable areas of Moldovan agriculture.
NGO
34.
The present low efficiency of the agricultural sector
derives from its weak link to the markets and the low competitiveness level of the output
8
Regional Comparative Advantage Analysis: Albania, Georgia and Moldova, IFAD, 2004.
18
produced. This unfortunate state of affairs is determined by interconnected market failures that
all together form a vicious circle that is hard to break. Weak and underdeveloped agricultural
markets for inputs and outputs keep the producer prices depressed, while input prices keep
increasing much faster. Since most of the tradable ag inputs are imported, Moldovan farmers face
the world prices for their inputs, but are not able to receive the world prices for their produce.
Constraints on both the supply and the demand side are to blame for this situation. On the supply
side, the low and inconsistent quality of agricultural produce is responsible for the poor
marketing opportunities presently available to Moldovan growers. This, in turn, is linked to
demand side failures, i.e. the under-development of vertically coordinated supply chains in
Moldova (comprising food retail chains, processors, exporters, other downstream players) that in
developed economies drive the demand and set standards for the agricultural produce based on
latest market requirements. Farmers in Moldova also lack institutional arrangements in form of
voluntary membership organizations meant to facilitate marketing and other services to better
integrate them in vertically coordinated supply chains.
35.
Today the success of agriculture and agricultural producers of a small open economy,
such as Moldova, is highly determined by their compliance to the international standards
and quality systems. Modernization of the Moldovan system of management of quality, food
safety, and animal and plant health is critically needed to maintain access to profitable market
segments in CIS countries, as well as to acquire and increase access to new export markets
through diversification, especially in the expanding EU. Replacement of the present system of
mandatory standards and overlapping inspections by one based on fewer mandatory regulations,
voluntary standards, and streamlined inspections will reduce costs hence increasing
competitiveness at the same time it will improve food safety and agricultural health.
36.
Modern market infrastructure provides an efficient tool for increased value added in
agriculture and is an essential part of developing vertically coordinated supply chains. In
Moldova there is a critical need for increased storage capacities9, particularly cold storages and
controlled atmosphere storages, collection points, field cooling facilities, packing houses dealing
with post-harvest treatment, grading, sorting and handling of horticultural produce. While the
private sector should be the driver of such investments, the state should highly encourage them
through committed policy support and public good provision.
37.
Agro-processing is another essential mechanism for increasing agricultural value
added. Agro-processors could serve as the dynamic element that the agricultural sector needs, by
transmitting market signals from the ultimate markets to the farm gate. As part of this process,
they may offer modern agricultural technologies along with financial incentives, thus enabling
farmers to meet their contract requirements. So far, however, the Moldovan agro-processing
industry has not fully succeeded in ensuring this role. Most agro-processing operations,
especially small and medium enterprises, face difficult constraints in many areas, including
technology, finance, management, marketing, logistics, and regulatory burden. If sufficient
numbers of enterprises succeed in the face of these constraints and grow rapidly, this stream
could become the dynamic element of the ag sector.
38.
In spite of above-average growth rates over the last decade, the agro-processing
industry has not yet stepped on the path of sustainable development. Agro-processing
accounts for half of the Gross Industrial Product, and this share has remained pretty stable over
9
A Cold Chain Study conducted by USAID/CNFA in November 2004 estimated that about 70 percent of the fresh fruits
and vegetables produced in Moldova are sold during the harvesting season and without the benefit of refrigerated storage.
19
2000=100%
the last decade. While being on the rise since 2000

with impressive annual growth rates of 15-18%, Figure 13. Industry growth rates, 2000=100%
200
growth of the agro-processing industry has slowed
180
down to 5% per annum in 2004, and then took a steep
160
downward path in 2006 as a result of the wine sector
140
120
crisis (which is the dominant sector with a 40% share
100
in GAPP) (see Figure 13 and Annex 4/T.4.1). A few
2000
2001
2002
2003
2004
2005
2006
hundred firms operate in agro processing, and the most
Industry , total
API
important products include wine, fruit and vegetables,
meat, and dairy products. Agro-processors generally
source their raw material from domestic supplies, one exception is the meat industry, which
imports most of the meat and offal raw material (since domestic stock is more expensive than
imported frozen meat).
Growth in agro-processing has been driven mainly by the oils and fats industry, wine industry
and dairy industry. The worst performing industry is tobacco10. The wine industry growth has
already proven its un-sustainability and vulnerability to economic downturns. The impressive
growth of the oils industry (over 30% p.a.) should also be regarded with concern, because it is
driven by the export growth of one single product (sunflower oil) produced by one single local
enterprise that has a market share of over 90% of domestic oil production. The least concentrated
industries that exhibit a somewhat better export market diversification are the dairy and fruit &
vegetable industries (see Annex 5).
39.
Investments
in
agro-processing
are
highly
concentrated in the wine sector. During 2000-2006 agroprocessing has attracted over 330 million USD in fixed capital
investments, figure that has been built up of annual amounts
that started at 13 million USD in 2000 and rose up to 70
million USD in 2006 (Annex 1). Agro-processing annually
attracts between 10 and 20% of total investments and
accounts for approximately half of investments that go into
the industry. As Figure 14 clearly shows, the lion share of
these investments went into the wine and spirits industry (
60%), while the fruit and vegetable industry came second
with a share of 9% in the total figure (see also Annex 4/T.4.8).
Figure 14. Fixed capital investments

in agro-processing, avg.03-06
Other
food
18%
Meat
4%
Fruit+
veg
9%
Dairy
4%
Tobac.
5%
Wine+
spirits
60%
Since the late 1990s, a wave of investment, primarily from Russia, has occurred in the wine and
distilled spirits industry. Additional recent investment in the wine industry has come from the
United States, Germany, and France. Investment in meat and dairy production has come
primarily from Belgium and Holland. Fruit and vegetable industry has attracted investments from
the United States.
10
This is the only industry that is still a state-dominated monopoly, suffering from many inefficiencies, including underutilized capacities, high costs of production, low produce competitiveness.
20
40.
Agro-food exports account for the majority of Figure 15. Evolution of agro-food exports and
Moldovan
exports,
but
are
increasingly imports
approached by agro-food imports. The net agrofood trade, although still positive at 20-30%, has been
steadily declining over the last decade (see Figure 15
and Annex 2), this pointing out the weaknesses of the
domestic food industry to satisfy the increasing
requirements of domestic consumers, in terms of both
Total exports
quality and range. The most export-oriented products
Agro-food exports
are wine and spirits, as well as fruit and vegetables,
Agro-food imports
both fresh and processed: only these two categories
account for nearly 40% of Moldovan exports. Very
high RCA11 indicators for these two categories rank Moldova among the top 10 countries in the
world specialized in the export of these products (see Annex 5/T.5.5).
1200
million USD
1000
800
600
400
200
2000
2001
2002
2003
2004
2005
2006
41.
To achieve stable growth in agro-food exports, Moldova should diversify and increase
access to high value markets. The CIS countries are Moldovas most important partners in agrofood trade, accounting for about 60% of its total agro-food exports. In CIS, Russia is by far the
major destination of Moldovas agro-food produce. Romania is an important neighboring market
as well. Approximately 20% of Moldovas export goes to the industrial countries of the European
Union and the United States (see Annex 5/T.5.10). The EU-oriented food products fall in the fruit
and vegetable category and include nuts, dried and frozen fruits, as well as juice concentrate.
It has become clear over the last decade that trade with traditional CIS partners is not fully
transparent and does not guarantee stable export markets. In 2005 and 2006, sudden bans by
Russia on imports of Moldovan wines and spirits, horticultural and livestock products have
emphasized the need for urgent export diversification. Increasing exports to the EU would help
achieve this diversification and provide access to higher-value markets. Therefore, meeting the
requirements of global food supply chains is the challenge that Moldovas agro-food sector is
facing today.
42.
The bottom line is that for rural poverty reduction to be sustainable then it must be
primarily market-driven, and this means aiming for an agricultural sector that is
competitive, especially in the export markets. When the local supply will satisfy the
international demand and Moldovan agro-food products will be able to compete on international
markets, then Moldovan agriculture has high chances of becoming a profitable business, provided
the value chain links are strong and based on long-term partnerships. Growing agricultural
incomes will enable the development of non-farm activities in rural areas, since the farming
population will create a demand for various products and services, and will be able to actually
pay for these (which is not the case today). Wider job opportunities in rural areas and higher
profitability of farming operations will stimulate the most productive ones to remain in
agribusiness, thus enhancing sector efficiency and driving sector growth. In fact, the development
of other non-farm sectors on the basis of a profitable and competitive agricultural and
agribusiness sectors is the path towards countrys sustainable development and growth.
11
RCA Revealed Comparative Advantage compares the share of a given sector in national exports with the share of
this sector in world exports. RCA values above 1 indicate that the country is specialized in the sector under review.
21
1.2.2. INDUSTRY
43.
Industry is an important sector in Moldovan economy with a relatively stable share in
GDP. For the first time in 2005, the Industrial GDP outran the Agricultural GDP, which has been
declining since 2000. In 2006 the industry share of
GDP accounted for 14,4%12 (Figure 16, Annex 8), Figure 16. Significance of Industry for the
registering a decrease as compared to 2005 mainly Moldovan economy
60.0
due to the wine sector crisis. The industrial sector is
dominated by the manufacturing industry that
50.0
produces around 80% of the GIP. Producing almost
40.0
half of the GIP, the agro-processing industry is the
30.0
most significant sector of the manufacturing
20.0
industry.
In 2000-2006 exports practically tripled and
reached at the end of the period 600 mill. USD
(except agro-processing products13), which is 57%
out of all exports of goods.
10.0
0.0
In 2005 industry employed almost 12% of labor

force, the labor productivity being three times
higher than in agriculture and lower than in services sector.
2001
2002
2003
2004
2005
2006
Industry share in GIP, %

Industry labor force as % of total
Non-food Industrial exports as % of total
44.
In 2000-2005, the industry had higher growth rates than those of GDP, however the fall
of 2006 demonstrated the volatility of this growth. The GIP growth rate has been more volatile
than the growth rate of GDP and this means a higher sensitivity to factors of influence (Figure
17). The GIP overall growth in 2000-2006 accounted
for almost 57% (Annex 9/T.9.2.), when the average Figure 17. Growth of GIP and GDP
annual growth rate was almost 8%. Starting with
20.0
2003 the GIP growth rate has seriously decreased,
15.0
while in 2006 the GIP decreased by 7% as
comparing to the previous year (Annex 9/T.9.2.).
10.0
That fall is mainly due to the dramatically decreased
5.0
wine production (enforced by Russias import
restrictions), which had a negative influence on the
0.0
2000 2001 2002 2003 2004 2005 2006
performance of other connected sectors. For ex.
-5.0
glass and paperboard industries decreased by 8-9%
as compared to the previous year.
-10.0
Meantime, some industrial sectors have had a
GDP, %
GIP, %
greater performance, mainly due to penetration of
other markets, for ex. production of medical and
optical equipment (107%) or textiles production (18%), while others succeeded due to
affiliation to growing sectors, for instance, to construction like mining industry (22,5%) or
production of construction raw materials (10-13%) (Annex 9/T.9.2.). However, these sectors do
not have a significant share in the industry, so their growth has not compensated the fall in
production of key industries.
12
13
Only for large enterprises (employees >20 persons and sales > 1 million MDL).
Agro-processing industry is described in Section 1.2.1. General indicators of industrial sector development analysis
include the above mentioned industry, except cases where the text provides otherwise.
22
45.
Industry growth has not contributed to Figure 18. Growth of average monthly
creation of new jobs within the sector. During the nominal wage
analyzed period the total number of industry
3,500
employees slightly increased, after which in 2005 it
3,000
decreased slightly below the level of 2000. At the
2,500
2,000
same time, the overall growth rate of the sector was
1,500
68% due to investments in technologies and
1,000
equipment. The growth of the sector unsupported by
500
0
new jobs has lead to substantial increase in labor
2000 2001 2002 2003 2004 2005 2006
productivity within the industry. For instance, 10 out
of 21 industry sub-sectors have raised their labor
Mining industry, lei
Manufacturing industry, lei
productivity by 2-3 times within a 5 year period
PHGW Sector, lei
(Annex 9 / T.9.3.) Growth of productivity was
Wide-economy, lei
accompanied by much higher increase of wages: in
Monthly subsistence level per capita, lei
certain sectors the average monthly wage increased by
3-4 times comparing to 2000 (Figure 18, Annex
9/T.9.10). Investments in modernization of industry sector and accelerated transfer of innovative
technologies are drivers of sustainable development.
46. Industrial enterprises are facing deficit of skilled labor force. The deficit occurred mainly
due to emigration of people in other states and to some extent, outflow of labor force from
industry into other sectors with higher incomes (construction, trade services). Industry faces lack
of technical and engineering employees and skilled workers. Also, the difference between the
level of students knowledge in education institutions and that of real necessities of the industry
sector is increasing.14 Anyway, the industry might supplement its labor force from agriculture,
where remuneration is lower, which does not mean that the same labor force does not see the
services sector (the same construction or trade) or emigration as a more attractive probable
destination that is better paid than industry.
47. Decreased volume of investments (in relative terms) is preventing the industry sector
from sustainable development. The overall volume of investments made in the industry over
2000-2006 has reached 807 mill USD, which is almost 20 times more than in 2000 (Annex
9/T.9.7.). However, the share of industrial fixed
capital investments is decreasing (from 45% in 2001 Figure 19: Share of sub-sector investments
as % of Industry investments
to 30% in 2005 Figure 19), because of their re100%
orientation towards the services sector, where the
90%
80%
profitability is higher or increasing. The industry
70%
investment growth rate is higher than in agriculture,
60%
50%
but is lower than in services. The structure of fixed
40%
30%
capital investments by sub-sectors shows that the
20%
agro-processing industry was the biggest beneficiary
10%
0%
accumulating 44% of total industrial investments in
2000
2001
2002
2003
2004
2005
2005, followed by PHGW Sector, 27% (Annex
Other s ub-s ec tors
9/T.9.6). The light industry should be mentioned
Pow er, heat, gas and w ater s upply
Jew elry
(textiles, apparel and footwear), which attracted
Non-metallic prod-s (glas s , c ement etc )
Publis hing and printing produc ts
foreign investors (especially, from Italy) due to cheap
A pparel and f urs produc ts
and qualified labor force. Textile enterprises have
A gro-proc es s ed produc ts
made steps forward in the value chain, offering goods
14
Industry Development Strategy for the period up to 2015.
23
for the European fashion industry15; however, they havent reached a sustainable level of
development. That is because investors can anytime shift the textile production in lohn to places
where the labor force is cheaper.
Meantime, there are sectors that have not attracted any investments within the analyzed period of
time: medical and optical industry, metallurgic industry and production of other transport means
(less than 1 mill. lei in 2000-2005). Insufficient investments, beside other deficiencies, lead to
higher production costs, and eventually, to decreased competitiveness of products.
48. Poor infrastructure prevents establishment and development of industrial enterprises.
The communications sector delivers qualitative services increasingly growing in the last few
years. The energy sector does not limit the access to consumption. However, covering
consumption depends completely on imported energy resources, and this produces risks for the
entire Moldovan economy. The poorest infrastructure sectors are roads and water supply. Goods
are transported mainly on railways and roads, where river and sea ways are unavailable, which
would be less costly to use. At the same time, almost 70% of roads are in poor shape16, and that
leads to at least higher financial and time costs. The water supply infrastructure is old and needs
significant investments for renewal and enlargement of the water/wastewater network.
49. The implementation of international standardization and quality requirements will
provide new opportunities. The Moldovan market has a low absorption capacity of goods due
to its small size. This makes domestic producers operate toward exports. While the competition
is high on external markets, implementation of quality management systems like ISO etc. is
becoming an imperative not only for the survival of local enterprises, but also for their extension
and diversification on external markets as well. There are two reasons that are retaining
enterprises from implementation ISO: (i) high price, insupportable for small enterprises and
(ii) market/markets do not require the products delivered be in compliance with this standard. In
general, the second condition would be good enough for implementation of ISO within a
developing enterprise. Regulatory reform, signing agreements on commercial preferences GSP+,
CEFTA and free trade with CIS countries and other states could consolidate the efforts on
competitiveness building of domestic products. Quality systems are currently implemented by
some Moldovan export enterprises; however their number is still relatively small.
50. The competitiveness of domestic goods is still being adversely affected by endogenous
and exogenous factors. These include:
- high rate of amortization of equipment and facilities,
- low investments,
- use of power-intensive technologies,
- poor infrastructure,
- lack of strategic management and marketing skills,
- high costs and short terms of loans,
- failure in partial or total compliance of domestic products with international quality
standards,
- high prices on energy resources and dependence on their imports,
- scarce labor force,
- high costs of ISO implementation,
- issues related to legal framework.
15
16
Assessing Competitiveness in Moldovan Economy, USAID-Bizpro, July, 2004.

Assessment of road network is an integral part of the WB document Revision of public expenditures 2006.
24
The growth of purchasing capacity of population (due to increasing inflows of remittances) has
generated a higher demand for industrial products, especially consumer products. In terms of
competitiveness, domestic industrial products are often losing in the competition with imported
products on quality vs. price characteristics.
51. The volume and the structure of exports confirm the low capacity of industry to add
value and meet the needs of external markets, as well to substitute imports to some extent.
Non-food industrial exports are characterized by a small set and volume of exported goods as
comparing to imports. Only some sectors have an increased export capacity (Annex 10/T.10.2.),
other groups of products are insignificant as share of total exports. Thus, apparel and accessories
accounted for 19% out of total exports in 2006 and are far from other groups of products, mainly
due to massive production in lohn and their further re-export. Apparel is followed by electrical
machines and apparatuses with 4% of exports. On the other side, production of paper and
paperboard, footwear and furniture had the highest annual average growth rates (over 40%),
which surpassed the same rates of the world exports by 4-5 times (Annex 10/T.10.3.).
RCA indicators show that Moldova is specialized in
exports of some groups of industrial products,
including skins, apparel and accessories, carpets;
however it is far from world export leaders. Although
Moldova imports practically the same categories of
products, the net trade balance is positive and
significant only for apparel and accessories, articles
of leather, footwear and carpets out of those selected
(Annex 10/T.10.8.). That means that the majority of
domestic industrial products does not (or it does
partially) substitute foreign products on local market.
Figure 20. Export and Import of non-food

industrial products, thou USD
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2001
2002
2003
2004
2005
2006
It is important to mention the extremely small share

Export
Import
Deficit
of high value products in exports (optical and medical
apparatus and instruments, electric and electronic
equipment). That brings to light the fact that the local industry is mainly oriented to exports of
low value added products. This situation is common to low income countries. In the regional
context, Moldova does not differ too much: the share of industrial high-tech exports in total
industrial exports in 2000-2005 is practically the same as that of Romania and slightly below
than that of Ukraine (Annex 1). Comparing similar economy group of states, Armenia and
Georgia, the situation is different: Moldova outran Armenia by 2-3 times, but it was surpassed
by Georgia by almost 10 times, the share of which in 2005 is slightly below the level of high
income countries (export of spare parts for planes and helicopters amounted in 2004 and 2005
almost 78 i 88 mil. USD).
52. The low diversification of export markets and products determines the high sensitivity
of economy to external shocks. This is well illustrated by the case by Russian Federations
import restrictions on agro and wine products, where the decrease of the wine production by half
has lead to the 9% fall of industrial production. Almost half of industrial production is exported
to CIS countries and the other half to EU and South-Eastern European countries. The best
diversification of products is in the apparel and accessories, and electrical machines and
apparatus sectors (Annex 10/T.10.10). Nevertheless, the share of the first 3 export markets of the
above mentioned sectors (and also for the other sectors) is higher than 80%, which might
adversely affect exports by 27% if an hypothetical shock of restrictions on one market occurs.
25
The same issue is valid for other sectors, especially for leather items and paper and paperboard
products, since they have 3 and respectively, 4 export markets.
The level of diversification of export products is better than that of markets (Annex 10/T.10.9.).
At the same time, it shows the stringent necessity of investments in technologies, innovations
and new production lines, especially of products with high value added and others. This will not
only decrease the sensitivity to external shocks, but will also generate capacities of substitution
of imported goods.
53. Territorial polarization of industrial enterprises is a driver neither for regional
development (especially of rural areas) nor for alleviating poverty. In 2006 in Chisinau city
(where 22% of Moldovan population is living and 56% of fixed capital investments have been
made) operated 250 large enterprises (out of 684, Annex 9/T.9.8.), which employed 48% of
industrial personnel and produced 50% of industrial production. Other enterprises (the majority
of which are manufacturing agro-products) are
located in small towns. The poverty rate in Figure 21. GIP per capita by regions, thou lei
small towns is the highest17, because the
Avg. per country
6211
(3581 mii pers.)
majority of enterprises do not operate or operate
Chisinau (780 mii
at low capacities; and inhabitants do not have
pers.)
10728
land parcels in order to feed themselves from
North (1020 thou
4434
pers.)
agriculture.
In rural areas only 6% of economically active
population is employed in industrial sector,
where wages account for 55-80% out of the
country average level in the industry, depending
on rayon18. Thus, there are significant
disproportions in industrial development
between the regions and the capital (Figure 21).
Eventually, population moves to the capital or
emigrates abroad.
Center (1070
thou pers.)
2441
South (550 thou

pers.)
1289
UTA Gagauzia
(160 mii pers)
3339
0
2000
4000
6000
8000
10000 12000
Source: Annual Report on Evaluation of Implementation of

Economic Growth and Poverty Reduction Strategy 2006 (draft)
54. The regional development of the industry, especially in villages and small towns, will have a
greater impact on poverty reduction. Stabilization and even growth of poverty rates in these
areas is an alarm that requires attention on the necessity of qualitative changes within the main
sectors of these areas industry and agriculture. Services have no room for development and
extension in areas with low demand or low purchasing capacity. The agro-processing industry
should take on the main role as a driver and starting point of sustainable development of regions
due to its strong relationship with agriculture, which eventually would lead to countrywide
poverty reduction. The above-mentioned changes are closely related to investments in these
areas and increasing competitiveness of productive sectors of Moldovan economy.
17
18
Moldova: Poverty Update, WB Report, No 35618-MD, June 2006.

Industry developments strategy for the period up to 2015..
26
1.2.3. SERVICES
55. Services sector represents the largest sector of Moldovan economy for the last five years,
and, arguably, the most important factor in poverty reduction due to the major
contribution to economic growth and above average wages. Particularly high rates of growth
have been registered in such sectors as constructions, transportation and communications, which
showed a cumulative growth of above 120% over the last five years, thus increasing their share
in the overall services sectors gross value added. Services share in GDP increased to 56% in
2006 from 54% in 2005.
In the regional context, Moldovas services share in GDP shows a greater growth, which may
suggest some competitive potential at the marco- level, taking into account the relatively well
skilled labor still present on the market, despite the huge outflows in the recent years.
Figure 22: Share of major services sectors in 2005 and 2000
Constructions
6%
Constructions
6%
Trade
20%
Trade
26%
Other
48%
Other
52%
Transport and
communications
22%
Transport and
communications
20%
Source: NBS
56.
Moreover, Moldovas trade in services becomes more and more important, exhibiting
an increase of about 2.7 times in total volume of trade during the last 10 years, thus
reducing the trade deficit in this sector to zero. Taking into account that as of last year the
trade deficit in services was reduced to almost zero, we may conclude that the competitiveness of
Moldovas services sectors in the regional context is on rise.
Especially this holds true with the trading
partners from the CIS countries, with
which Moldova registered a positive
trade balance, with only one exception
Belarus. This is not the case with the
trading partners from EU, which may
lead to the conclusion of a weaker
competitiveness of Moldovas services
sectors with more mature services sectors
from those countries. First five trading
partners (Figure 23) in the services area
are: Belarus, Germany, Romania, Russia
and Ukraine), which cumulated about
40% of the trade in services with
Moldova in 2006.
Figure 23: Trade balance in services with the major

trading partners
15
10
5
0
Germany Romania
Russia
Ukraine
Belarus
Other
-5
-10
-15
Source: NBM
27
57.
One of the peculiarities of the services sectors in Moldova is their concentration in
urban areas, which contributed to the diminishing rates of poverty in towns. Together with
constructions, the services sector employs about 29.1% of the workforce, with a major
contribution to the GDP. This shows an increased productivity in services sectors comparing to
that one in agriculture and industry. Despite slight reduction in labor force in the services sectors
after the financial crisis from 1998, this diminuation was insignificant and quickly bounced back,
with new jobs being created in services during the last three years, surpassing the pre-crisis level
in most of the services sectors. Also, the services sectors exhibit a relatively stable employment
rates across the sectors with some insignificant deviation for the trade and hotel services.
58.
Services sectors are driving force of the internal demand and consumption by
introducing new types of services such as mobile communication, financial services (consumer
credits and leasing), which leads to the increased volumes of trade with industrial goods
(electronic goods for households). Services sectors are more attractive for foreign investors,
including the local ones, due to the relatively cheap but qualified labor force, which makes some
types of services to be competitive at the regional level (ex: transportation). Services sectors also
benefit from the increase in the internal demand generated by the growing volume of remittances
(ex: construction sector), and, at the same time, positively influence other sectors through
secondary effects such as boosting local industries of building materials.
59.
During the last decade the average salary in almost all services sectors surpassed the
national average per economy (Figure 24), especially in financial services, construction, as well
as transport and communications thus
Figure 24: Average monthly salary by services sectors
having a major contribution to the
4000
poverty reduction in Moldova. The
3500
average wage in most of service sectors
3000
2500
are higher then that in agriculture and
2000
industry. However, the rates of growth of
1500
nominal wages are mostly below the
1000
500
labor productivity indicators, which
0
raises the question of sustainability,
1998
1999
2000
2001
2002
2003
2004
2005
Average per economy
Construction
despite that in several sectors such
Transport and communications
Financial services
convergence is already noticeable,
Real estate
especially in the financial services.
Figure 25: Evolution of foreign trade in services
600
500
400
300
200
100
0
0.0
-5.0
%
US D m illion
60.
Services sector proved to be more
resistant to the external shocks. One of
the leading indicator of sector
competitiveness, particularly for a mall
open economy such as Moldovas, is the
growth of its exports both in terms of
goods and services. Taking into account
the latest external shocks that affected
Moldovas trade in goods (financial
crises in 1998 and restricted market
access for the agricultural goods and
wines to Russia in 2005-2006), services
sector proved to be much more stable to
these shocks.
-10.0
-15.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
export
import
trade deficit as % of total trade
Source: NBM
28
Firstly, the decline in total trade in services, (Figure 25) was much smaller
that observed in trade in goods (-35.3%) registered in the same year.
(-10.6% in 1999) than
Secondly, the recovering period was shorter - (two years ) - to surpass in 2000 the pre-crises level of
trade in services (1997), compared to six years (in 2003) which were necessary to reach the level of
trade from 1997, not to mention that for the exports of goods it took even one year longer (2004) to
reach the pre-crises level, which was not the case of exports of services.
Thirdly, the trade deficit in services was reduced to almost zero (Figure 26) during the last decade,
in contrast with the trade balance in goods, which more then doubled in negative terms during the
same period reaching a deficit of over USD 1.6 billion.
Moreover, unlike the situation from the
trade in goods, Moldovas trade in services
exhibited, with just one exception in 2003,
a higher export growth rates than those of
import thus showing a long-term
competitiveness of the services sectors in
general in the regional market. Although, a
closer look at the driving sectors has to be
carried out in order to better understand the
underlying strengths of the Moldovas
services export potential on international
markets.
The same conclusion concerning the
overall resistance to shocks is applied to
the export of services, which was exhibited
in the first years after 1998. Besides the
fast recover, the growth rates since then
were mostly higher then those registered
for the exports of goods (Figure 27).
Moldovas accession to the World Trade
Organization (WTO), and signing of free
trade agreements within the South-Eastern
Europe Stability Pact and CEFTA creates
new opportunities for services expansion,
however, may trigger a tougher
competition from much more mature
services sectors from the neighboring
countries.
61.
Services sector also showed a
higher rate of return for the
investments, and during the last decade
attracted most of the investments in
fixed assets from both domestic and
foreign sources (Figure 28). Although,
from the point of view of foreign direct
investments, services do not count for
the majority of the FDI flows, their
Figure 26: Export/Import growth rates in services

0.0
-2.01997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-4.0
-6.0
-8.0
-10.0
-12.0
-14.0
-16.0
Source: NBM
Figure 27: Export growth rates in goods and services

40%
30%
20%
10%
0%
-10%1998
-20%
-30%
-40%
1999
2000
2001
export growth goods
2002
2003
2004
2005
export growth services
Figure 28: Share of investments in fixed assets in services

sectors
70%
60%
50%
40%
30%
20%
10%
0%
1998
1999
2000
2001
2002
2003
2004
2005
29
share is rapidly increasing.

Transport, communications, and trade are amongst the most attractive services sectors for FDI.
While the actual number of companies with foreign direct investment within these sectors is still
fairly small, they provide most of the FDI both in absolute and relative value among services
sectors.
Figure 29. Distribution of investments in fixed assets by
services sectors
Constructions
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Real estate services

Finacial services
Transport and
communications
2005
2004
2003
2002
2001
2000
1999
Hotel and restaurants

1998
The fact that the share of FDI in the trade is

diminishing provides some arguments that
investors are oriented towards more long-term
investment objectives. Although equity capital
continues to play a major role in the structure
of FDI, foreign companies with investments in
Moldova have tended to credit their own
businesses rather than invest in new equity
capital to reduce risks.
Trade
However, the trend will change soon after

enactment of new legislation in insurance
sector, providing for a sharp increase in the
required capital of the companies, as well as tightening of the prudential norms. For the banking
sector appearance of the major international players on the financial market such as Societe
Generale (France) and Veneto Banca (Italy) will bring not only a foreign competition but also a
higher standards for services in these areas. The major investors in the services remain USA, UK,
France and Luxemburg, as well as traditional partners from Russian Federation.
1.3. SELECTION OF SECTORS FOR FURTHER ANALYSIS
62.
Moldova in transition is slowly moving from an agriculture-based nation to a more
industrialized and services-dominated economy. Most of the poor presently live in rural areas
and are engaged primarily in agriculture that so far exhibits a low productivity and therefore
offers low incomes. Fast growing services in urban area have been taking on part of the labor
force willing to leave both agriculture and the less comfortable rural zone. Industry, although also
on the rise, is currently in an adjustment process struggling for produce and market
diversification, and therefore yet unable to absorb significant additional labor that is in search of
out-of-agriculture alternatives. As a result, the out-of-country labor migration that has began in
early 2000 still goes on, at a slower pace though. Moldovas development prospects therefore
critically depend on countrys ability to stop and reverse the labor drain pattern.
63.
Supporting Moldovas transition towards a diversified and developed economy would
require building on countrys comparative advantages (in agriculture and agri-business) as
well as grasping prospective market opportunities (in services). Poverty reduction efforts are
believed to have broader country-wide effects with emphasis on rural areas if the focus is put on:
(i)
Spurring agricultural growth and productivity,
(ii)
This to be further supported by a dynamic and expanding agro-processing industry,

which in addition to adding value to agricultural produce, also provides additional nonfarm employment opportunities in rural areas and small towns.
(iii)
Growing services should complement this process as active absorbers of labor, while
enhanced business activity and investments in rural infrastructure would give a rural
direction to the expansion of the services sectors. This would also allow for a higher
30
penetration of financial services into the rural areas, along with the growth in
consumption.
64.
The rationale presented above, complemented by sub-sector based analysis (both qualitative
and quantitative), has led to the selection of the following sub-sectors for further in-depth
analysis, which are seen as potential drivers of growth with the highest impact on poverty
reduction in Moldova. These are:
Fruits and vegetables, both fresh and processed;
Wine;
Transportation services
FRUIT & VEGETABLES
65.
Poverty reduction efforts in rural area and small towns will
be best rewarded through the sustainable development and growth of the fruit and
vegetable sector, both fresh and processed. The indicator-based analysis of agriculture and
agro-processing clearly puts forward the following three categories: fresh fruits and vegetables,
processed fruits and vegetables and wine (see Annex 7). Fresh fruits and vegetables rank highest
among primary agriculture sub-sectors and fresh fruits confirm their top position in export
markets. Wine and processed fruit and vegetables are the winners in agro-processing and exhibit
a very high degree of export orientation: according to 2005 world export data, Moldova ranks
top-3 in the world in the export of beverages and spirits and top-4 in the export of processed fruit
and vegetables, showing extremely high specialization levels in the export of these products (see
Annex 5/T.5.5).
Fruits and vegetables are suitable for production all over the country, thus potentially showing a
broad country-wide impact on poverty reduction. The wide range of fruits and vegetables that can
be grown in Moldova ensure sufficient diversification and offer the necessary safety net to
farmers income. The international demand is also highly favorable for fruits and vegetables, both
fresh and processed, due to increasing tendencies worldwide towards healthy life styles and diets
that are strongly associated with fruit and vegetable consumption. Not to forget that increased
local production of fresh fruit and vegetables is an excellent opportunity for import substitution
(the imports of fresh produce, especially fresh vegetables, have sky-rocketed over the last years
in response to rising demands of urban consumers).
Developing a market oriented and competitive fruit and vegetable sector, both at the level of
production as well as processing, represents a great challenge, but targeted investment and
innovation coupled with stimulating state policies can do the job. Further detailed analysis will
reveal the current state of the sector, its comparative advantages, both current and potential, as
well as identify the major constraints inhibiting sector growth in an attempt to separate between
constraints that are best addressed by the private sector and those to be dealt with by the state.
WINE SECTOR
66.
Analysis of non-food industry (section 1.2.2.) has identified the textiles
and apparel (TA) as the most performing and promising sector (annex 12). As top position in
non-food exports, net trade, diversification of export products and market concentration, TA
sector hires almost 16% of non-food industrial labor force (annex 11). Competitive advantages of
TA are relatively low cost of labor and closeness to European market. Finally, it could be seen as
reasonable to select the TA sector for detailed analysis and identification of major constraints that
prevent it from development.
31
But inter-sector evaluation of finalists from agriculture and API versus those from non-food
industry brought to light the wine sector, analyzed in section 1.2.1. Comparing to other API
sectors wines have taken the III place (see the adequate comments in the previous paragraph), but
comparing to TA sector wines are net superior (see the table below).
Year 2005
Volume of production, million lei
Value of exports, million USD
Share in MD Exports, %
Average number of industrial-productive
employees, thou persons
Number of large enterprises
Source: NBS
Textiles+apparel (TA)
Wines
947
194
18
12
4031
278
25
15*
59
129
* - including producers of strong drinks.
Wine is a product of national strategic interest of Moldova. Employing only 15% of industrialproductive labor force, it comes up with 1/4 of export revenues. Moreover, despite the TA sector,
development of wine sector involves development of other sectors like primary agriculture
(grapes), paper and paperboard industry (labels and paperboard boxes), glass industry (bottles)
and printing industry (printing labels). Taking into account that a relatively big share of
population from the Center and South of Moldova cultivates vineyards and delivers grapes to
nearby wine factories, the impact on regional development and rural poverty reduction would be
significant.
However, the toughest arguments against selection of TA sector come up from the character of
production in lohn. So, development of the TA sector is extremely fragile, and its presence in
Moldova depends directly on the cost of labor. If the cost increases, investors, mainly Italians,
would shift the production to those states, where the labor is cheaper. This process took place in
other states, where the production conveyed in transit firstly Baltic countries, then Slovenia, exYugoslavia, Hungary, Check Republic, Bulgaria, Romania, Poland. There is a risk of increasing
the labor cost in Moldova, because the standards of life are increasing due to consumption,
imports and remittances.
Taking into consideration all advantages and disadvantages of the wine sector and the TA sector,
as well their significance for economy and population of Moldova, the wine sector has been
selected for detailed analysis and identification of major constraints that prevent its
development.
TRANSPORTATION
67.
From the entire array of services, the transportation sector is the
closest to the material production of goods by ensuring logistics for the their movement
from producers to consumers via communication ways (road, railways, water or air). In
addition, passenger transportation represents the link between the economic activity and social
life of the community, by ensuring the mobility of the workforce within the national economy.
The share development of the transportation sector does not guarantee the economic growth, for
that being necessary such factors as reduction in transportation costs and increase its safety;
favorable business climate and developed auxiliary services. The improvements in these factors
would lead to the transportation sector becoming a promoter of economic expansion. In turn, the
economic development will increase the need for transportation services both in quality and
quantity terms.
32
68.
Taking into account the share of the agro-industrial sector in the national economy of
Moldova, the role of transportation sector becomes more relevant by ensuring the access of
multiple, and geographically dispersed, small producers of agricultural goods to the
markets, as well as processing and wholesale centers for their merchandise. On the other
side, similarly important is the ensuring the supply chain with various factors of production for
the agricultural producers and processing industry with such items as fuel, fertilizers, as well as
delivery of necessary services to them.
69.
The importance of the transportation sector for the national economy derives from its
contribution to the Gross Domestic Product (GDP), which during the last several years has
grown from 7.3% in 1998 to 12.1% in 2005, as well as from contribution of the transportation
sector to the Gross Value Added, which increased substantially from 8.7% in 1998 to 14.4% in
2005. Also, the transportation sector employs the largest number of workforce among the other
services sectors, being comparable with the number of employees from industry.
On average, for the countries of South-East Europe it is characteristic a share of about 10% of the
transportation and communication Sector in GDP, which is somewhat above the average for the
Central European countries19. Although the statistics from this region, including the Republic of
Moldova, does not make a distinction between the transportation and communication sectors, we
may conclude that this indicator for the Moldovan economy is within the regional average, and
registered a higher growth in the last three-four years.
19
Comparative Analysis of Regulatory Measures in the Services Sectors in South Eastern Europe Transport, Vienna,
2003
33
CHAPTER 2. IN-DEPTH SECTOR ANALYSIS

2.1. FRUIT AND VEGETABLE SECTOR
Summary of Findings
70.
The diamond approach applied to analyzing the fruit and vegetable cluster has
revealed the current status of the sector, the constraints inhibiting its growth, as well as the
opportunities and challenges that lie ahead. A brief snapshot of the F&V sector is presented in
Figure 1 below. The under-developed fresh sector could quickly catch up and achieve
international competitiveness if investments in innovative agricultural technologies and
production techniques (intensive orchards and vineyards, greenhouses, new high-yielding
varieties), irrigation infrastructure and marketing infrastructure (cold storages, packing houses,
etc.) occur at an accelerated pace. The processing sector, much more advanced in its development
as compared to the fresh sector, is currently a significant player on export markets and has
excellent opportunities for expanding its presence there if three major areas of concern are
properly ensured: adequate raw material supply, availability of skilled (and young!) labor force,
and development of new products with high market demand. Thus, both fresh and processed
sectors vitally depend upon modernization of primary agriculture.
71.
Using the Constraints Analysis classification of constraints, the conclusion of this indepth sector study is that the four major constraints for the Fruit and Vegetable Sector are
human capital, market infrastructure, innovation and competitiveness, as well as
investment and business climate. Identified constraints of the F&V sector are briefly
summarized below (see also the text highlighted in red in Figure 1 below):
Inadequate irrigation infrastructure, poor water quality, poor roads increase the cost to
businesses. Irrigation is seen as the greatest constraint to growth of the vegetable sector.
Under-developed market infrastructure impedes the Moldovan fresh produce from reaching the
high-end markets in CIS and EU.
Standards that are not adjusted to EU regulations and unavailable EU accreditation block the
development of sector capacity to penetrate these high value markets.
Shortage of long-term finance aggravates the problem further.
Scarce human resources, especially lack of skilled labor force, is strongly connected to the
weak education system that is highly detached from the real sector needs and requirements.
The connection between research-education-extension and ultimately the real sector is weak
and non-responding to sector demands in terms of new technology and skill development.
Restricted access to imported plant varieties hinders quick and easy transfer of innovation down
to the farm level.
Rent-seeking behavior of various state control and inspection bodies is still quoted as an
essential negative factor discouraging businesses.
Last but not least, beneficial and highly needed FDI flow is hampered by the restriction on ag
land ownership.
72.
Most identified constraints can and should be addressed by the Government. The
majority requires insignificant financial resources but essential political will in form of policy
actions and institutional rearrangements. Key constraints that require large financial resources on
behalf of the state are irrigation infrastructure20 and standards harmonization. Market
20
State-managed irrigation infrastructure covers the pumping stations and the distribution systems (balancing reservoirs
and the underground pipe network).
34
infrastructure (cold stores, packing houses) and part of irrigation infrastructure (i.e. on-farm
irrigation equipment), on the other side, should be private-led investment initiatives. The state,
preferably in collaboration with donors, should support and encourage these types of investments.
Successful business models are critically important acting as effective catalysts for investments
and triggers for the mass replication of these success stories. This is the challenge that presently
lies ahead the Moldovan fruit and vegetable sector.
Figure 30. The Competitive Diamond: Fruit and Vegetable Sector
Structure,
Strategy and
Rivalry
A modern F&V fresh sector is in an
incipient stage of development in
Moldova. Vegetable production
needs investments in irrigation and
greenhouses. Fruit production invest.
in cold storages and packing houses.
Factor
Demand

The
export oriented FVI has two major
Conditions
Conditions
concerns: secure raw material supply
and expanding markets.
Competition within the sector is
World markets for F&V show
Favorable natural resources:
regarded as open and healthy.
very favorable demand trends.
good climate, rich soils
Minor rent-seeking actions of state
Importers (both EU and CIS)
flavorful & tasty products.
bodies increase the costs of doing
demand high and consistent
Scarce human resources, both business.
product quality, steady and
skilled and unskilled.
FDI is relatively low but increasing and timely supply, complete product
Lack of young skilled labor
highly valued. Restriction on ag land
specifications, high-quality
force in small towns.
ownership is a constraint to FDI.
packaging, EurepGAP for fresh
Unsatisfactory level of
and HACCP for processed
technical knowledge and skill.
Related and
produce.
Capital resources generally
Supporting
Export prices of Moldovan
available dependent upon
F&V products are significantly
Institutions
collateral availability. Longlower than world export prices.
term loans are scarce.
Achieving reliable raw material supply
The gap is especially high for
Infrastructure deficiencies
is a big task that processors handle
the fresh products.
constrain sector development. through both cooperation with farmers Non-harmonized standards,
Electricity, gas and
and expansion of own production.
weak labs and certification
communications are
Ag inputs are widely available, but plant bodies, as well as lack of EU
satisfactory. Inadequate water variety choice is limited due to the
accreditation are major
quality requires additional
registration restriction.
constraints to sector integration
resources. Irrigation is largely Locally produced packaging materials
in the international trading
un-available, but highly
do not fully meet sector demand.
system.
required. Road condition is
Machinery and equipment are imported Active participation in regional
generally poor, but not critical and competition on this market is
exhibitions is an important
to F&V enterprises.
insufficient.
export promotion activity and
Research and education institutions are
learning tool.
week and not connected to the needs of
market participants.
The private / public dialogue is ad-hoc
and unorganized.
35
FACTOR CONDITIONS
73.
Favorable natural resources, particularly climate and high native soil fertility, make
Moldova well suited to growing temperate fruits and vegetables. Survey respondents have
unanimously confirmed this, indicating that the combination of good climate and rich soils
contributes to a flavorful taste of Moldovan fruits and vegetables, this being regarded as an
important attribute of quality that should be particularly valued and built upon in developing
sectors competitive advantage and countrys unique proposition. The opinions of some CIS
importers that have dealt with Moldovan produce come to confirm these reports, indicating that
Moldovan fresh products are particularly juicy, tasty, sweet and regarded as healthy in spite of
multiple problems with the quality and packaging21 (to be discussed further in the following
sections).
Insufficient rainfall during the critical growing period (late spring and summer months) calls for
the need of irrigation, which is considered absolutely necessary for cultivation of vegetables in
Moldova. Hails and acid rains are also threatening successful fruit and vegetable production.
Protected field vegetable production is a good way to cope with this type of negative climatic
factors. The firm opinion of respondents involved in vegetable production is that greenhouses
represent the future of Moldova vegetable sector.
74.
Scarce human resources, both skilled and unskilled, has been recognized as a great
constraint in the fruit and vegetable sector, and was confirmed and emphasized by each
and every respondent. It has been reported that unskilled labor force for seasonal agricultural
works is not widely available in rural areas. Respondents indicated the need to involve a great
deal of time, effort and money in finding and keeping the unskilled labor force. Processors that
have own production indicated to collect workers every day by bus from an area of 30-50 km
distance from their field, and it often happens that workers drop out while replacements are hard
to find. Some companies use financial incentive schemes to stimulate workers to come to work
every day, but even these schemes are not effective enough. Others reported to have established
contacts with schools and universities in order to engage pupils and students for agricultural
works, because local labor is not available. Training farmers and/or agricultural workers has been
reported as a widespread practice adopted by most businesses.
The scarcity of unskilled labor in rural areas is obviously the result of out-of-country migration,
while the reluctance of the remaining labor force to engage in relatively low-paid agricultural
works22 suggests the availability of remittances that may considerably reduce the attraction of the
local offer.
Finding skilled labor force in rural area is an even harder problem. Some joint ventures reported
that upon the start-up of their businesses they had to hire foreign specialists in agronomy,
production technologies and even engineering, due to the inability to find the necessary highskilled professionals locally. After having trained the local staff, the foreign experts had been
replaced, while their services are still used for various occasions. Most companies indicated to
collaborate with universities by engaging University professors as consultants in various
technical fields of production and processing. These consultants also offer trainings/ workshops
for the skilled labor force, when required. In some cases the equipment suppliers serve as a
source of training for the skilled labor force as well. The general opinion is that the level of
21
Source: USAID/ADP Market Studies available on-line at www.export.acsa.md.

The wage per day for unskilled seasonal ag works presently varies between 80 and 150 lei and includes lunch and
transportation. This is an increase by 1.5-2 times as compared to the previous year 2006, and triple (or more) with
respect to 2005.
22
36
domestic technical expertise, both in production but especially in processing, is rather low and
requires additional training and a higher skill level.
Another problem indicated during interviews is the lack of young skilled labor force willing
to live and work in small towns (where most agro-processing enterprises are located). This
oftentimes explains why older people of retired age remain in high management positions longer
than required and cannot be easily replaced. The acute lack of young skilled human capital in
rural areas induces large companies to think of some incentive-based approaches for stimulating
the educated labor force to return to their home towns after graduation. Companies also reported
the need to establish closer links with universities and vocational schools towards adjusting their
curricula so that it better addresses their current requirements for skill and knowledge
development among the young workforce. So far, these are just intentions that have been
articulated by some of the large companies, and which hopefully will be pursued by them in the
near future.
75.
Capital is generally available for lending and largely utilized by all enterprises that can
offer collateral. Most of the larger operations reported to have no problems accessing bank
credits, as long as they can offer the required collateral. It has been reported that the 2006 wine
crisis has freed some of the bank resources that were largely available to other industries,
including the fruit and vegetable sector. However, smaller enterprises that cannot provide
collateral (particularly hard collateral, such as real estate) have limited access to bank credits or
cannot obtain loans in the required amount. This has been emphasized as an important constraint
to their development and further expansion.
Still, interest rates are considered too high and the borrowing term - too short. All
respondents indicated that the 19-20% interest rate on bank credits (offered in MDL) is too high.
Credits for longer-term periods (five years and more) are generally not available from own
resources of local banks, but are greatly needed by the private sector (for the purchase of
equipment in particular). Only one large cannery (100% foreign company) indicated to have had
no problems with accessing a five-year loan from a local bank. Donor credit lines do partially
solve the term problem. Credits made available through IFAD programs and the WB RISP
have been mentioned as sources of long-term credits (up to 10 years) available to rural SMEs.
Another mechanism for coping with the lack of long-term resources has been indicated by some
enterprises - the purchase of equipment in leasing. Although a needed alternative of investment
credit, the leasing sector, however, is at its incipient stage, with over ninety percent concentrated
in vehicle leasing, and remotely reaching the private sector to satisfy machinery/equipment
needs. Nevertheless, there is indication that the leasing market is ready to take a turn towards
development of commercial leasing by diversifying its produce portfolio (to include tracks,
construction equipment, agri-business equipment)23. Some donor-financed leasing programs are
currently bridging this gap in certain sectors, such as the 2KR Japanese Program, targeted to
leasing of agricultural equipment.
A part of the inadequate access to finance problem is the mis-communication between
banks and clients. Clients are not active enough in pursuing available bank products, and often
base their conclusions on out-dated anecdotal evidence without directly approaching the bank.
Banks, on the other side, are merely commencing the path of pro-active marketing, and there is
much to be done not only in actively promoting and advertising their products so that the
information is widely available to potential clients, but also in learning to structure products
23
Information reported by leasing companies.
37
tailored to client needs. With regard to the collateral problem, the strong banking competition24
has encouraged many banks to step out of their comfort zone and take on more risk, and there
is a general trend within the banking sector to soften the collateral requirements, in particular
concerning hard collateral and move towards more liquid security. In addition, regulatory
changes25 have allowed commercial banks to structure collateral-free lending products to the
micro and small business sector. In order to resolve the term problem, banks have attracted credit
lines from international organizations, such as EBRD, IFC and BSTDB, as well as from donors
WB and IFAD that are currently functional and highly demanded. Insufficient awareness and/or
asymmetric information on the finance market possibilities and opportunities suggest essential
gaps in communication on both the supply and demand sides.
76.
The current infrastructure status does present a constraint to business development.
The supply of electricity and gas has been reported satisfactory, although the price is considered
too high. Communications have a good coverage, are widely available and do not present a
problem. All respondents-processors reported that the quality of supplied water (for use in
production) is poor, this imposing higher costs on them due to the need to acquire water refining
stations.
Poor and outdated irrigation infrastructure has popped up as a critical issue for the future
successful development of the fruit and vegetable sector. As mentioned above, irrigation is an
absolute must in vegetable production, and is highly recommended for orchards and even
vineyards. All respondents indicated to be
using (or their suppliers-farmers have been Table 1. Irrigated vs. non-irrigated vegetable yields
using) irrigation for the production of [tons per hectare]
Vegs
Non-irrigated
Irrigated
vegetables, and reported serious intentions to
(with fertilizers) (with fertilizers)
install drip irrigation systems for the orchards Tomatoes (transpl)
27.0
68.1
29.8
58.2
in the near future. It should be noted, Tomatoes (seeds)
Sweet
pepper
13.7
36.2
however, that countrywide irrigation is
Eggplant
11.8
32.1
highly
unavailable,
this
critically Cucumber
8.6
22.5
constraining the development and growth of Peas
8.4
14.2
the fruit and vegetable sector in Moldova Cabbage (early)
20.9
34.0
38.8
87.2
(see Table 1). Recent statistical data reveal Cabbage (late)
Source:
P.Patron
Joint
action
of
ag
intakes
in
vegetable
that only between 5 and 10 percent (or
production
approximately 10,000-20,000 hectares) of
previously (pre-1990) irrigated land is
currently irrigated.
The poor and constantly deteriorating pumping plants and
deficient distribution systems do not encourage the private sector
to invest in new small-scale irrigation equipment. The EU Food
Security Project has addressed the irrigation constraint in
Moldova by supporting the renovation of pumping plants, on one
side, and facilitating the procurement in leasing of on-farm
irrigation equipment by the private sector, on the other side (see
more details on this in Annex B).
This year I could not irrigate

my 30 hectares of table grape
vineyards because the state
could not stick to its part of the
deal by supplying the water in
the reservoir so that I could
further use it for irrigation.
24
Strong banking competition has been driven by the large number of banks (15) as compared to the size of the local
market, as well as the entry of foreign banks that has lead to growth of bank capital resources.
25
In 2005, the National Bank of Moldova allowed commercial banks to provide loans without collateral up to 30,000
MDL for micro enterprises and up to 75,000 MDL for small enterprises.
38
The road condition is poor but not critical to F&V businesses. All interviewed companies
admitted that the road condition is poor in Moldova, and to some extent this does affect their
businesses, fresh fruit operations in particular. However, when asked to prioritize among various
constraints, most respondents indicated road infrastructure as the last item on the constraints list,
while lack of finance, lack of human capital, lack of irrigation and market infrastructure had
emerged as the key constraints of the fruit and vegetable sector, as of today.
STRUCTURE, STRATEGY AND RIVALRY

77.
In the past Moldova was one of the largest producers and processors of fruit and
vegetables in the former Soviet Union with most of the production exported to other
republics. For this reason, Moldova had the good fame of countrys orchard (since Moldova
was particularly known for its fruit and wine production). The collapse of the old system and
disruption of the existing state-controlled distribution chains along with Moldovas becoming an
independent state in early 1990s had led, among many other disturbances, to shrinking
agricultural production and obviously agro-processing. Changing land ownership structure,
annulled subsidies, lost markets and general economic crisis that persisted throughout the past
decade are just few reasons for the sector decline.
The adjustment process was difficult and lengthy with the private sector slowly evolving and
learning on how to operate in a market economy and how to produce according to market
demand. F&V sector recovery began in early 2000 in response to increased economic activity and
investments in the sector, development of financial markets, improvements in agricultural
markets for inputs and outputs, rebuilding of market linkages and grasping new market
opportunities. However, significant untapped potential still lies ahead the Moldovan F&V sector.
Enhanced competitiveness of Moldovan F&V products, both fresh and processed, will ensure
stable and expanding markets to producers and processors, concomitantly transforming
Moldovan agriculture into a highly productive and profitable business.
78.
Production of fruits and vegetables for the fresh market offers the highest returns to
agricultural producers. The fruit and vegetable sector consists of two key sub-sectors, fresh and
processed. The processing sub-sector includes four major groups of products: canned, dried,
frozen and juices (see also table below). Production of fruits and vegetables for the fresh market
offers the highest returns to agricultural producers and is thus the most profitable, if the necessary
high quality is ensured. Production of these products for the processing industry offers lower
returns to farmers, but requires somewhat lower quality products, and thus lower production
costs. Within the group of processed F&V, frozen products offer the highest value to producers.
Next in the list are dried and pickled (part of canned) products, while other preserves (pastes,
jams, other nes products) as well as juice concentrate require relatively low quality raw material.
Sector
Sub-sectors
Product groups
FRESH
Fresh
PROCESSED
Frozen
Dried
Canned
Juices
FRUIT &
VEGETABLES
Value to ag producer
High value
Medium to high value
Medium value
Low to medium value
Low value
79.
The two sub-sectors, fresh and processed, have different value chains that largely
reflect their very different development statuses at the moment and different market
segments (see Figure 31 below). Due to scarce market infrastructure (cold stores, refrigerated
39
distribution chain, packing houses) most of the fresh produce is marketed during the harvesting
season, and a relatively small portion is stored in refrigerated warehouses in order to be sold in
off-season26. Major clients of fresh producers are traders, intermediaries and exporters that
usually come to farmers gate and buy large tracts of fresh produce, offering relatively low prices.
[Some producers prefer to directly sell their products in open markets (since they are not happy
with the prices offered by intermediaries), but this involves additional time, effort and costs.] The
fresh produce is further sold either on the local market (mainly open markets, food stores) or
exported. At the moment a relatively small portion of domestic fresh produce reaches local
supermarkets. This is because the domestic produce quality/appearance is largely inadequate for
the high-end market segment.
Canning enterprises and drying plants have different value chains due to different products and
different target markets (Figure 31). Canneries products target the consumer market, both local
and CIS. Moldovan canned products reach the markets mainly through distributors that further
place Moldovan products in supermarkets and other food stores in the target markets. Moldovan
dried products, on the other side, target mainly the EU wholesale market. Also, some quantities
of domestic dried fruits in retail packs reach local retail chains, but this market is rather small.
[More discussion on these industries is presented throughout this section.]
Figure 31. Value Chains for the Fresh and Processed F&V Sectors
DOM
Open
markets
Cold storages
DOM
Supermarkets
FRESH PRODUCERS
END CONSUMER
Traders,
intermediaries
DOM
Food service
EXP
Exporters
Importers
Large Producers
Foreign
Distributors
Supermarkets
CANNERIES
Local
Distributors
Food Stores
Products:
Direct Sales
Company
Stores
Ag Producers
Own ag
production
Canned
Frozen
Juices
Exporters
Ag Producers
Ind pack
FRUIT DRYERS
Own ag
production
Importers
END CONSUMER
Processing
plants
Supermarkets
END CONSUMER
Retail pack
26
A Cold Chain Study conducted by USAID/CNFA in November 2004 estimated that about 70% of the fresh fruits and
vegetables produced in Moldova are sold during the harvesting season and without the benefit of refrigerated storage.
40
FRESH
80.
A modern sector of fresh fruit and vegetables, based on advanced
technologies and market oriented, is currently at an incipient stage of development in
Moldova, but has good opportunities for growth. The Moldovan fresh fruit production is still
highly export oriented, although the number of export products is limited, including mainly
apples, but also table grapes, plums and smaller volumes of peaches, apricots, cherries and sour
cherries. Fresh vegetables, on the other side, have become net importables in Moldova within the
last decade, due to the failure of local producers to supply early- and off-season vegetables for the
growing consumer market (determined by low access to irrigation, lack of greenhouses).
The current export markets of Moldovan fresh fruit and vegetables are CIS countries as well as
Romania. Trade with these countries benefits from historical ties, extensive ethnic networks,
similar standards and regulations, as well as regional and bilateral trade agreements. High EU
requirements for quality, safety and volume do not yet allow Moldovan fresh produce to enter
those markets. As of today, probably none of Moldovan companies can supply EU with the
volume of fresh produce that would justify investments in the rigorous EurepGAP certification or
British Retailers Code of practice.
81.
Presently Moldovan fresh products are generally positioned on the lower end of their
target markets, being sold primarily in wholesale markets, most often in poor packaging and
poor overall appearance, with part of the product being bruised and/or damaged during
transportation. USAID/ADP Market Studies indicate that Moldovan apples do not meet the
requirements of the high-end market and thus do not reach most of the supermarkets. Although
being tasty and rather cheap, they bring too many problems: high waste, poor packaging,
unsatisfactory grading, etc. Due to these problems, they are being traded by smaller wholesalers
and sold at the open bazaars. Similar conclusions can be found in all market reports that cover
various fresh products from Moldova in different target markets, such as Romania, Belarus,
Ukraine, Russia, as well as Latvia and Germany (these two countries are much less familiar with
the Moldovan produce). A summary of suggestions to Moldovan exporters of fresh apples
expressed by importers in three target markets (Russia, Lithuania and Germany) is presented in
Annex C.
This is happening because modern market infrastructure, including cold storages and packing
houses, is highly underdeveloped in Moldova. There are approximately 150 cold stores in the
country (all private), most of them built during the Soviet times. Presently only half of them are
functional, and not more than 20 are relatively new modern cold As of today, there is no
stores built after 2000 (some with the support of donors27). Of these, one single large modern
larger-capacity cold stores (over 1000 tons) are few in number, about packing house / export
5-7 for the whole country, which is estimated as highly insufficient. centre in Moldova!
There are only 3 controlled atmosphere storages that allow for longer
storage periods. As to Moldovas packing capabilities, these practically do not exist. Presently
there are only 3 enterprises in the country that dispose of automatic packing lines for some
products, and there is no one large modern packing house with multiple packing lines and
refrigeration rooms. All respondents recognized the critical need for packing houses in order to
add value to the ag produce and improve market access, indicating, however, that large
investments and significant know-how are needed for starting-up such a business. Some
respondents reported to seriously consider this for the near future.
27
USAID funds (provided through PFCP and ADP programs implemented by CNFA), as well as funds of the Dutch
Government had been provided (as matching grants) for the renovation of some cold stores in Moldova.
41
82.
There are, however, positive signs of quality changes arising in the fresh produce sector
of Moldova. Commercial-type production of fruit and vegetables is slowly evolving in response
to favorable market signals and increasing interest of investors, both local and foreign. Local
producers of high-quality fruits and vegetables that produce for the high-price segment of the
market indicated that they practically have no competitors on the domestic market, while the
demand for their produce is extremely high. This is an explicit
indicator of current under-development status of the fresh sector If you have a quality fresh
in Moldova, which has, however, plenty of room for further product, there is no problem to
expansion. The local market for vegetables is capable to absorb sell it: local buyers (either
large quantities of year-round fresh vegetables, and if local exporters or retailers) are queuing
to get it!
producers were able to provide them, this would minimize the
need for imports. Therefore, expanding the greenhouse sector and applying modern production
techniques is seen as a prerequisite towards building a competitive fresh vegetable production
sector in Moldova that is able not only to satisfy the local demand, but also compete in export
markets.
Fruit producers showed very optimistic about the opportunities of the fresh fruit sector of
Moldova, indicating that the success is guaranteed if the focus is put on the right varieties,
advanced technologies and irrigation. Many interesting ideas and future investment plans had
been articulated with regard to developing high-tech super-intensive orchards and table grape
plantations of demanded varieties (especially seedless) with access to drip irrigation. Fruits that
are seen as highly perspective and demanded by the market are pears, seedless table grapes,
peaches, apricots, cherries, plums (certain varieties), as well as various types of berries.
There is a widespread agreement among producers of fresh fruit and vegetables that innovative
production, although essential, is not sufficient in todays world. Production developments should
necessarily be supplemented with cold stores and packing houses that complete the produce chain
and add significant value to the produce.
PROCESSING
83.
The fruit and vegetable industry is a traditional industry in Moldova
that is highly export oriented and currently struggling for the diversification of products
and markets. Presently the industry consists of 7 large enterprises that produce 70-80% of the
FVI output, and approximately 90 small and medium
enterprises that contribute another 20-30% to total output. 3 Figure 32. FVI Structure, 2006
Anenii
out of the 7 large enterprises (LEs) produce over 80% of LE
Noi Cosnita
SMEs
1%
output, these are Natur Bravo (that has three plants in
10%
20%
Calarasi
Cupcini, Floresti and Ungheni), Orhei Vit and Alfa Nistru (see
2%
Olneti
Figure 32). Of the 90 SMEs, approximately 50 are canneries
1%
and 40 are fruit drying plants, but only about half of them
Alf aNaturNistru
were functioning in 2006 (see Annex 14).
Brav o
13%
Fruit and vegetable processing enterprises are widely and

evenly distributed across the country, with most of the
plants located in small towns. F&V processing units are
present in almost every rayon, and the concentration is
somewhat higher along the Nistru river where irrigation
possibilities are better (see the map in Annex 14).
26%
Orhei-Vit
27%
Source: MAFI
All enterprises of the fruit and vegetable industry, both large and small, are 100% private
entities. Orhei Vit is fully owned by Development Group USA and Natur Bravo is 100% foreign
company owned by the US Western NIS Enterprise Fund (a financial investor). There are some
42
smaller canneries and drying operations that have attracted FDI from Holland, Germany,
Belgium, US, Cyprus.
The range of FVI products can be grouped in three large
categories: juices, including juice concentrate, that take over
about half of total FVI output, canned vegetables with 30%
and processed (canned and dried) fruits with 20% (see Figure
33). Frozen products are produced in insignificant quantities
so far in Moldova28. The full list of FVI products by
enterprise is provided in Annex 13.
Figure 33. FVI output by group of

produce
Dried&
canned
f ruit
20%
Juices
50%
Most of the FVI output is exported, exports accounting for

Canned
over 90% of domestic output. Both large and small
v egs
processing enterprises are highly export oriented businesses.
30%
CIS countries, Russia and Kazakhstan in particular, are the
main markets of Moldovan canned fruit and vegetables.
Source: NBS
Canned fruits, however, had showed a greater success (as
compared to canned vegetables) in
penetrating the EU market (see Table 2). Table 2. Export Market Destinations of Moldovan F&V
products, 2006
Fruit juice concentrate is sold primarily
CIS
EU
Russia
Romania
US
on EU markets (Germany and Austria),
Dried vegs
3%
46%
0%
25%
12%
while ready-made fruit and vegetable
Dried fruit
18%
81%
0%
5%
0%
juices in consumer packs go to CIS.
Frozen vegs
80%
20%
79%
19%
0%
Dried fruits and nuts (in industrial packs)
Frozen fruit
15%
76%
15%
1%
0%
are mainly oriented to the EU wholesale
Canned vegs
94%
6%
73%
4%
0%
market. Relatively small quantities of
Canned fruit
64%
30%
34%
6%
1%
frozen vegetables are exported primarily
Juices
31%
68%
6%
3%
0.1%
to CIS, while frozen fruit take the EU Source: NBS
road.
CANNERIES
The canning of vegetables and fruits represents a long standing industry in

Moldova and is relatively well developed. Foreign distributors and supermarket chains are the
main clients of Moldovan canneries on the target markets. Company representations are also
present in some markets, such as Russia, Kazakstan, Romania, but direct sales are a small portion
of total sales. The interviewed enterprises indicated to export their produce mainly through
distributors, who also serve as their major source of information with regard to requirements and
changing demands of the target markets. In addition, large companies conduct market studies on
some of their target markets on regular basis. Large canneries produce primarily under own label,
but also work with private labels. Smaller companies indicated to produce largely under private
labels. Companies reported that the Moldovan canned produce is currently positioned in the
lower-to-middle price segment, depending on the product.
Interviewed canneries pointed out that their main competitors on the export markets are Asian
countries and China (for the low-price market segment), as well as Hungary and Bulgaria (for the
medium-price consumer). In order to successfully compete on the export markets, the companies
apply competitor-specific strategies targeted to the two market segments. Competing with Asia
for the price-sensitive low-end consumer requires minimizing the cost of production, while the
28
See a larger discussion on frozen produce further in this section.
43
competition with Western countries for the medium-price consumer requires raising quality and
safety standards, as well as improving marketing techniques.
FREEZING
The frozen business practically does not exist in Moldova. There are only
two enterprises (Alfa Nistru and Ecoprodrosmol) that currently produce small volumes of frozen
fruit and vegetables. There are reports that two other large companies (Natur Bravo and Orhei
Vit) have been recently installing quick freeze processing lines with the intention to start
production in the near future. All canneries reported that the freezing business is seen as a
prospective investment opportunity that offers high margins and has excellent market
perspectives. Most of them indicated serious intentions to get involved in the quick freeze
production.
DRYING
Fruit drying companies have different markets and different products. Dried
produce is exported exclusively in industrial package (10, 8 or 5 kg, depending on client
requirements) to the EU markets: Germany, France, Holland, Belgium, Baltic States, Check
Republic, Slovenia. Smaller drying businesses generally do not get engaged in export operations
and sell their produce to local large dryers, who consolidate large volumes that are further sold to
importers in the EU (wholesalers, distributors, processing plants). A few local companies created
their own brands for dried fruits in consumer (retail) package for the local market. These products
are present in local supermarkets, successfully competing with similar imported products, but are
in the lower price range. Companies plan to further develop these brands in the neighboring
countries, Romania and Ukraine, by means of regional supermarket chains. Accessing the EU
market with local brands in retail packs is not considered a viable option at the moment due to
high costs involved. Falling agricultural subsidies and price supports in the EU is seen by some
Moldovan dryers as a window of opportunity for larger and deeper market penetration.
84.
The private sector regards the competition within the industry as overall open and
healthy, but relatively minor rent-seeking actions of state authorities pose additional costs
on doing business in Moldova. All respondents, especially the smaller enterprises, had
complaints about multiple minor-type harassments
encountered in dealing with various state institutions. The basic fact that the state clerk cannot be
Examples include intermittent visits to the business found in his office during work hours is the
window of opportunity for corruption to
site of various control and inspection bodies, police first
step in, because in order to speed up the
stopping the tracks on the road way too often, process the businessman has to make the
certification bodies delaying the issue of certificates, effort to get hold of the clerk and then
customs authorities delaying the clearance procedures reward him for his time and assistance. In
too long. These are all examples of rent-seeking such a way state officials help you to be
behavior on behalf of state bodies that increase the grateful to them.
cost of doing business in Moldova. Although all
respondents agreed that corruption within state authorities reduced significantly over the recent
years, various bureaucratic abuses are still present and they clearly discourage businesses.
In addition, the justice system was reported as highly untrusted by businesses and a major barrier
to investments, especially foreign. There was another issue emphasized by respondents involved
in export operations that concerns the NBM policy of keeping the national currency artificially
high and constantly on the rise with respect to the US dollar and euro this was reported to be
seriously hurting the domestic exporters by causing them essential losses at currency exchange.
85.
All companies-respondents emphasized that FDI is highly important and welcome,
considering it a great tool for the transfer of technology, skill development and new market
44
perspectives. The Moldovan fresh business has so far attracted some foreign investments from
the US, Holland, Germany and Turkey (exact figures are not available). The interviewed joint
ventures indicated that FDI has brought along innovation, such as new varieties (i.e. 20 new
varieties of table grapes had been brought from the US), advanced technologies (i.e. hydroponics
production, year-round production), new skill development (foreign experts training local
specialists). The largest cannery in Moldova, Natur Bravo, indicated that the change in ownership
has lead to major staff changes in the core team and resulted in a new marketing team that has
been working on shifting the market orientation of the enterprise away from Russia towards more
reliable and higher value markets (by developing new products, actively searching for partners in
other markets).
Contradictory opinions have been expressed regarding the restriction on ag land ownership
by joint ventures. Some respondents consider that long-term leasing of land is a good alternative
to land purchase, while selling land to foreigners opens up certain risks. Others, on the contrary,
see this restriction as a major constraint to foreign investments in agriculture, indicating that
allowing foreigners to own land would somewhat balance other risks that the country has (high
macroeconomic risks, political risks, deficient judiciary system), and serve as a major attraction
point for foreign capital that is so much needed by the sector. This would also accelerate the
development of domestic land markets and land consolidation, while land in private ownership
could be used as collateral when accessing bank credits, which is not an option in case of land
leasing.
DEMAND
86.
World market prospects are very favorable for the
fruit and vegetable products, both fresh and processed:
annual growth rates of world export volumes account for 1015% (Annex 15). The lion share in world F&V exports goes
to the fresh products that account for 52% of the total. Canned
products take about 22%, juices - 12%, while the frozen and
dried products have a relatively smaller share of 7 and 6%
respectively. Comparing the world picture to the Moldova
structure of F&V exports, it is easy to notice the underdevelopment of the frozen sector in Moldova (see Table 3).
Table 3. Structure of F&V

Exports: Moldova versus World
[2005, %]
Moldova
World
Fresh
52.1
51.8
Frozen
1.1
7.1
Dried
5.3
6.3
Canned
21.0
22.8
Juices
20.4
12.0
Source: NBS for Moldova data and ITC for
world data.
87.
The annul CBI reports on EU markets for fresh and processed fruit and vegetables
indicate that todays consumer preferences with regard to food and nutrition uphold
enhanced fruit and vegetable consumption, being focused on the following principles29:
Safe food [Food products should be safe and eating them should not result in any risk to
health.]
Healthy food [These are food products that are low in fat, sugar and salt content.]
Organic food [Recent food scares made many people concerned about the safety of food and
the effects of intensive farming on the countryside and on the environment in general.]
Fruit and vegetables [The growing interest in the consumption of fruit and vegetables in the
EU food market is caused by the fact that fruit and vegetables contain vitamins and natural
antioxidants that help prevent heart diseases and cancer.]
29
Source: Fresh Fruit and Vegetables, EU Market Survey 2005, CBI; Preserved Fruit and Vegetables, EU Market
Survey 2005, CBI.
45
Environment consciousness [Food production, especially primary growing, should be

environment-friendly.]
Convenience [European people are working more and more in jobs outside their home, have
busy social lives, and, therefore, have a growing need for convenience meals.]
Tracking and tracing [With the help of good chain management and control within the chain,
end-product processors are able to supervise all kinds of aspects of fresh F&V and products
derived from them. The F&V processing industry is increasingly paying attention to chain
management and labeling systems, through which products can be traced back to the producer.]
Internationalization [As the world is increasingly turning into a global village, culinary
traditions from other continents tend to be more widely accepted by European consumers,
increasing the demand for ethnic and exotic ingredients.]
All these trends are interlinked, shaping the global demand within the fruit and vegetable sector.
Increasing demand for convenience products spurs demand for ingredients used in ready-to-eat
meals. Internationalization of taste increases demand for exotic ingredients. The need for safe and
traceable food ingredients provides exporters in developing countries with opportunities to catch
on to these trends.
88.
Market studies30 indicate that requirements and preferences of the high-end CIS
markets are similar to those of EU, in terms of both importers and end consumers. The
high-end CIS consumer is less sensitive to produce price, but highly sensitive to produce quality,
appearance and safety aspects. The low-to-medium income consumer is rather price-sensitive,
and cares much less about the produce safety and quality characteristics.
A strong tendency towards concentration and Ukrainian high-income consumers would not
consolidation can be noticed in the global bother too much about the price of the apples.
horticultural trade, both on the buyers and The colour of the fruits, their shape and size, as
suppliers level. As a result, the demand for well as the taste, are much more important
factors. For lower-income buyers the price is the
consistent volumes and qualities of fresh produce key factor when choosing specific varieties. For
increases, causing firms to introduce procurement this reason they prefer domestic or Moldovan
methods that manage the supply chain more apples because these are cheaper.
efficiently. EU importers as well as CIS importers Source: The Ukrainian Market for Fresh Apples,
targeting the high-end market segment of both Target Market Confirmation Study, CNFA/ADP, 2006.
fresh and processed F&V have similar
requirements towards their produce suppliers that focus on:
Consistent and high product quality according to importers specifications;
Steady and timely supply of products;
Reliability in supply and honoring agreements with the trade partners;
Complete product specifications;
High-quality packaging to reduce waste and losses;
EUREPGAP certification for fresh products and HACCP certification for processed foods;
Open communication.
In terms of quality, it would be a challenge to surpass the requirements that customers in the EU
demand as minimum standards. Although price will always remain a major competitive tool, it is
certainly not the only instrument for outranking competitors.
89.
Fruit and vegetable importers in developed countries face multiple problems with their
suppliers from developing countries, and Moldovan suppliers do not make an exception.
30
Source: USAID/ADP Market studies (www.export.acsa.md).
46
The 2005 BCI Market Report on Preserved Fruit and Vegetables points out these major problems
related to quality inconsistencies, delayed deliveries, uncertainty of agreements, non-compliance
to produce specifications and overall poor communication with buyers (see box below). These
general supply problems are also specific to Moldovan exporters of both fresh and processed
F&V, as indicated by USAID/ADP market studies. In addition, Moldovan exporters of fresh
produce had been warned of the critical need to address a number of key issues (as emphasized
by surveyed importers in target markets, both
CIS and EU):
The major problems faced by importers in the
grow the plant varieties required by the Netherlands in importing preserved fruit and
vegetables from developing countries are the
market;
dispose of the technical know-how in the field following:
Quality of shipment is not in line with samples
of modern production technologies, including sent;
production in protected field;
Delayed delivery;
ensure a fast and reliable refrigerated Exporters want to change agreed payment and
delivery terms;
distribution chain;
ensure proper storage of the fresh produce to Pesticide residues exceed permissible limits;
Paperwork and bad communication.
preserve its value and enable longer-term
Source: Preserved Fruit and Vegetables, EU Market
supply;
Survey 2005, BCI.
improve sorting & grading techniques to avoid
mixing products of different size, shape and
condition in the same batch;
use modern packaging (preferably European) to improve waste indices and losses during
handling and shipping;
ensure appropriate conditions for transportation of produce (refrigerated trucks, etc.).
These recommendations coming from the demand side have clearly emphasized the current
weaknesses of the Moldovan fresh produce sector - deficiencies in production, but especially the
under-developed market infrastructure - concomitantly putting forward the opportunities and
challenges that need to be overcome so that the sector can meet the growing demands of the
target markets.
90.
The options on the EU market of preserved F&V are limited for exporters from third
countries and offer a relatively narrow window of opportunity there. The 2005 CBI report on
preserved fruit and vegetables indicates that the opportunities for exporters of processed products
from developing countries lie in the following positions in the supply chain:
suppliers of preserved F&V ingredients to the food processing industry in the EU countries;
suppliers of preserved F&V in bulk to packers in the EU that pack in consumer and food
service units;
subcontractors for the food processing industry and retail organizations, which process fruit
and vegetables and pack them in consumer and food service units according to strict
specifications and under their customers labels in the EU.
91.
A quick comparison of prices obtained by Moldovan and World exporters of similar
fruit and vegetable products clearly show that Moldovan products are in the low-price
segment and have a long way to go to reach the world prices. The gap is particularly high for
the fresh products (see Table 3), thus confirming the revealed constraints concerning low quality
of domestic fresh produce, shortage of post-harvest handling and non-compliance to international
standards. The price gap is almost non-existent for two categories of products dried fruits and
juices that are standardized commodities on the world markets and Moldovan exporters that
comply with the basic standards are regular price takers in this particular case. It is worth
47
mentioning that Moldovas price dynamics

(2005 to 2006) is encouraging for all F&V
export categories, suggesting possible signs of
sector development in the right direction.
Table 3. Export prices of F&V products: Moldova

versus World [USD per ton]
MD2005
MD2006
World2005
MD as %
of World,
2005
92.
Current Moldovan standards based on
Vegs
the old GOST system are not harmonized
33%
fresh
208
229
635
with EU requirements this is a serious
70%
frozen
628
554
894
impediment to produce and market re35%
dry
127
152
368
orientation. Much of Moldovas legal,
Fruits
regulatory, and institutional framework for
42%
fresh
331
456
792
food safety and SPS remains tied to the GOST
47%
frozen
590
679
1.265
standards of the former Soviet Union.
78%
dry
1322
1767
1.695
Processed
F&V
Moldovan public services still use these
standards as their basic framework for
66%
canned vegs
601
655
909
39%
canned fruits
486
506
1.244
monitoring, surveillance, and inspection.
93%
juices
700
885
753
Actions are being taken to shift from a GOSTbased system to one based on international Source: NSB, ITC
standards appropriate to a market economy and
more effective in protecting human and agricultural health. It is important to mention in this
context that approximately 90% of these standards relate to agricultural products. The
harmonization progress is however very slow, since there is limited capacity, expertise and
resources to carry out this massive task (see Box 1 below for more detail).
Box 1. Excerpt from the WB Report/2006 Moldova: Managing food safety and agricultural health: An
Action plan
A major part of Moldovas primary legislation dealing with sanitary and phyto-sanitary measures has already
begun to converge with international and particularly European legislation. The task now is to develop technical
regulations and voluntary standards related to SPS and food items. THIS IS A HUGE TASK. Existing GOST
rules must be reassessed for compatibility with international standards principles and whether they contribute to
market access and private sector development. Ultimately, these rules must be abandoned, replaced, or changed
to voluntary standards. New bylaws based on international standards principles and regulations (when and where
benefits exceed costs) must be developed. The operating implications of the revised rules for quarantine and
inspection must be identified, and changes to daily enforcement practices must be communicated and
implemented. The Ministries of Agriculture and Health fall short in number of staff, knowledge, and expertise
(in market economic principles, risk assessment, economic evaluation, and language skills) to do this work
adequately within a period of 3 to 5 years, meaning a task force supported by international expertise will be
necessary. Priority should be given to products with greatest export potential and to higher-volume import
products that pose substantial human and agricultural health risks.
Box 2 below presents the different standard requirements for fruit and vegetable products of the
two Moldovas major markets - EU and CIS. EU standards for market access are clearly different
from the GOST system, and currently Moldovan public services for food safety and SPS
management lack the technical capacity to provide all the necessary certifications required by the
EU market. GOST standards in general form an obstacle to market access (other than CIS) as
they are not recognized in market economies. The high-end CIS markets already require supplies
that comply to some of the EU mandatory (and even voluntary) standards, and it is expected that
this trend will continue and intensify in the light of general market globalization and convergence
of consumer preferences and requirements worldwide. As international supermarket chains are
already taking market share from smaller shops, it is very likely that the market segments
48
accepting products produced according to former GOST standards will shrink and will offer
lower prices than will be attained in segments requiring international standards.
Box 2. F&V Standard Requirements by market: EU versus CIS
EU
CIS
Fresh
F&V
Mandatory standards:
- EU Marketing Standards (for quality
and labeling)
- Certificate of Origin
- Maximum Residue Levels (MRLs)
- Phyto-sanitary certificate
- Conformity Certificate
Voluntary Standards*:
EUREPGAP, HACCP, ISO 9000, 9001
- GOST Standards, including various
certificates: NOT HARMONIZED TO EU
MARKETING STANDARDS
Processed
F&V
- EU Regulations on products, labeling,
approved additives, pesticide residues.
- HACCP (mandatory since 2006)
Voluntary Standards:
ISO 9000, 9001; BRC
- GOST Standards: NOT HARMONIZED TO
EU REGULATIONS FOR FOOD PRODUCTS
- EU Marketing Standards;
- EUREPGAP
HACCP, ISO 9000, 9001
Source: BCI Reports on Fresh F&V and Preserved F&V for 2004 and 2005; CNFA Market Studies.
* Voluntary standards are often required by the high-end importers and retail chains.
The large producers recognize the importance of standards and do consider implementing ISO
and EurepGAP in the near future, indicating that this is becoming a critical necessity within the
general traceability requirements not only of the sophisticated EU markets, but also the high-end
CIS markets. All interviewed processing companies reported to have implemented ISO
certification standards and HACCP plans for a major portion of their operations. The large
canneries have their own testing laboratories that are
Currently there is one single apple
accredited by the Moldovan Accreditation Center. These producer (Codru ST) in the country
private laboratories usually have better basic infrastructure that has recently received
than do the state central laboratories. However, state EurepGAP certification, which
laboratory tests are still required for harmonization and enables the enterprise to access
certification purposes. All respondents recognized that the high-value EU markets.
state labs are under-funded, poorly equipped and lacking
trained staff, thus in a difficult position to provide quality service, while the reliability of issued
certificates is rather questionable.
93.
One major constraint mentioned by respondents is the lack of EU accreditation
available from Moldovan certification bodies. The National Centre for Accreditation has
mutual recognition agreements (MRAs) with CIS countries and several countries in the region,
but no agreement has been achieved so far with the EU. This issue is linked to the complex
problem of legislation harmonization and reform of the regulatory system that includes the
development of technical regulations and voluntary standards (see Box 2). Bringing standards
and technical regulations for the export-oriented products in line with EU regulations, is a
prerequisite to enhancing Moldovas capacity to penetrate the EU market.
94.
Moldovan F&V businesses are active participants of regional exhibitions that are seen
not only as a useful export promotion tool, but also a great learning exercise. Most
agribusinesses in Moldova participate in the annual Farmer exhibition held in Chisinau.
Processors reported that they regularly participate in regional exhibitions, such as Prodexpo and
49
World Food in Moscow, Astana Food and World Food in Kazakhstan, Anuga in Germany, SIAL
in France. Producers of fresh produce indicated to participate in IFA Fresh Produce in Moscow,
Indagra in Romania, Fruit Logistica in Germany. This is done on individual basis by use of
companies own resources (possibly with some donor support in some cases), while the state is
generally not involved in this process. Donor projects supporting some export promotion
activities for the F&V cluster include the USAID Agribusiness Development Project, EU Support
to MIEPO project, German-Moldovan Partnership Project.
RELATED INDUSTRIES AND SUPPORTING INSTITUTIONS

95.
Moldovan producers and processors of F&V depend largely on imported inputs. Most
of the inputs utilized by fruit and vegetable producers in Moldova are imported, only some seeds
and basic packaging are produced domestically. Processors, the next link in the value chain, also
largely rely on imported inputs, except for the raw material that is either produced by the
enterprise itself or sourced from farmers (see the diagram below). Thus, both producers and
processors face the world prices for their inputs and should be efficient and competitive enough
in order to be able to receive the world prices for their outputs.
Seeds
Ag raw
material
(DOM +
IMP)
(DOM)
Fert &
Chem
(IMP)
PRODU
CER
Ag mach
& equip
Irrig
equip
(IMP)
(IMP)
Packagin
g (DOM +
Own ag
prod
IMP)
(seeds,)
Transpor
tation
(DOM)
PROCES
SOR
Processin
g equip
Packagin
g (DOM +
(IMP)
IMP)
RELATED INDUSTRIES
96.
Raw material supply was reported as a major problem,
emphasized by all processors and producers that act as aggregators and traders of fresh
produce. No respondent declared no problem, everybody indicated to have encountered
difficulties with the quality, quantity, timing, consistency, price uncertainty, as well as the
reliability of raw material supply. Processors expressed two different, and rather opposite, views
on addressing this problem. Some processors have own agricultural production that ensures a
certain portion of their raw material needs (particularly the high-value raw material), and reported
the intention to further expand their own raw material base in order to lower their dependence on
farmers. Others have a different strategy: they rely exclusively on farmers and are not willing to
engage in agricultural production, since this is a different risk that they are not ready to take over.
All processors reported to be working with rather large farming operations that can offer large
quantities of products of relatively consistent quality. Their intention is to further reduce the
number of suppliers and focus on a few that are large enough and reliable enough. Processors that
rely mainly on farmers for their raw material supply had showed confident that the solution is in
building long-term partnerships with agricultural producers through regular training coupled with
50
advanced payments in form of seeds and equipment (for harvesting and irrigation) that is costly
for farmers to purchase.
97.
Agricultural inputs are widely available on the market, while the choice is limited for
some items. Main agricultural inputs include seeds and seedlings, as well as fertilizers and
chemicals. All of these are generally available from importers and local distributors of
international companies, while seeds and seedlings are also produced and traded by local firms as
well as state research institutes. No problems have been reported with the supply and range of
fertilizers and chemicals. The supply of seeds and seedlings is not a problem either, but the
variety choice is. The issue is that imported plant varieties, which are not yet registered in
Moldova, cannot be sold on the market and need to go through a mandatory testing and
registration procedure that currently takes 2 years for seeds and 6 years for seedlings (see also
Box 3 below). This allows the local state research institutions that produce seeds and seedlings to
maintain their share of the market, which otherwise would rapidly decline.
Box 3. Except from the WB Draft Report Steps to improve farmer access to new technology and rebuild
Moldovas seed industry (Chisinau, June 28, 2007)
Moldova seed companies have delayed and uncertain access to varieties from EU and CIS markets. The delay
is caused by the current practice to test varieties for several years before the National Council decides whether or
not to allow seeds of the variety to be sold in Moldova. In this way, COMPANIES LOSE YEARS. For vegetable
varieties that are sold in EU markets for only a few years, this is an impossible situation. By the time Moldova
approves the variety, it is no longer available
This limitation has been reported as a major constraint by many respondents (both producers and
processors). Some large enterprises have reported to have found ways to go around it by
collaborating with the State Commission31 for the admission on new un-registered varieties into
production for so-called testing purposes. The list of varieties
temporarily admitted for testing in production conditions is annually A few years ago I have
published in the National Registry of Plant Varieties and presently planted an orchard with
seedlings
of
unincludes 32 grape varieties, 48 fruit varieties and no vegetable varieties. registered varieties that
Respondents admitted that oftentimes they do take the risk of planting have been recently
un-registered varieties of both seeds and seedlings, which usually get registered.
on the local market through smuggling.
Most interviewed businesses consider that the state should allow
The investments I make
unrestricted access for seeds and seedlings from EU by eliminating in my business represent
the mandatory registration requirement and letting the private my own risk, so why
sector assume all uncertainty risks. This, in turn, would allow for the does the state impede me
transfer of high-yielding, disease-, pest- and drought-resistant varieties from assuming the risks
down to the farm level in no time, thus stimulating productivity of planting a new variety
enhancements through innovation in Moldova. More conservative that has high potential.
opinions have argued that the state should be the one to assume the responsibility of eliminating
all risks associated with introduction of new varieties into the country and must keep the
mandatory registry, however, seeking to maximally reduce the testing and registration period and
simplify procedures involved in this process.
98.
Machinery and equipment utilized by Moldovan fruit and vegetable producers and
processors are imported, mainly from the EU, but also CIS and other countries. Enterprises
31
State Commission for plant variety testing is the state authority subordinated to MAFI that authorizes the registration
of new plant varieties.
51
usually work with the local representations of equipment suppliers that are scarce on the domestic
market. The low competition among these firms reflects on the quality of their service - many
respondents mentioned weak guarantees upon procurement and inadequate service during
utilization (including lack of spare parts) as important deficiencies in their business.
Agricultural machinery and equipment, including irrigation equipment, is crucial for the
modernization of the F&V sector of Moldova. During the 1990s and early 2000s there has been a
process of rapid deterioration of the existing stock, while replacement investments were relatively
limited because of the high costs involved. Presently there is a tendency in replacing some of the
outdated stock of agricultural machinery, the process being largely supported by donors. One of
the most successful projects in this area is the Moldova-Japan 2KR project (initiated in 2001) that
has been ensuring a continuous renovation of the machinery fleet in Moldova. The offer includes
tractors, harvesters and irrigation equipment that can be purchased in leasing under favorable
terms.
99.
Higher-quality packaging materials utilized by the F&V sector are not produced locally
and should be imported. All respondents indicated that they import at least one or two
packaging items, which either cannot be found locally or their quality does not meet clients
requirements. For example, cans are imported from Hungary and Ukraine, some high-quality
cardboard boxes are imported from Turkey, glass jars for premium quality pickled products are
brought from Poland, Bulgaria or Ukraine, and high-quality film comes again from Ukraine.
100. One area that did not get any complaints on behalf of the respondents is the
transportation: no problems have been encountered in dealing with the transportation companies
that apparently are plenty on the local market and quite responsive to clients needs and
requirements.
SUPPORTING INSTITUTIONS
101.
Another area of concern is the quality of domestic research
and education institutions, as well as the inter-connection between research, education,
extension and their link to the real sector comprised of producers and processors. All
respondents agreed that the under-funded research institutions are weak in Moldova and the
general perception is that they lost any touch with the needs of the economy. The widespread
opinion is that Moldova should take the path of
link:
country-follower when it comes to science and Weak
Researchresearch and become rather pro-active in seeking EducationResearch
Extension
to adopt, utilize and implement domestically as
much as possible of latest technologies created by Real Sector
developed economies. Education is also seen as a
REAL
week element and it is judged based on the
SECTOR
insufficiently skilled labor force, as well as the
lack of necessary skills required by the processing
industry in particular. In the same time, the
Education
Extension
collaboration with Ag University professors (as
consultants and trainers) reported by most
respondents is found quite satisfactory and based
on long-term partnerships.
The greatest problem, however, and this was emphasized by each and every respondent, is the
lack of connection between the four variables research-education-extension-real sector. The
system connecting the four groups is not presently functioning, although is absolutely essential
for Moldovas agribusiness development and growth. Building the liaison between these areas
52
would also help to clearly see the current weaknesses of each area in particular and find ways to
overcome these.
102. A private / public dialogue does exist, but is rather sporadic and unorganized.
Interviewed associations and large enterprises reported overall positive interaction with the
Ministry of Agriculture on various policy- and business-related issues. In the same time, smaller
businesses reported no communication with state field institutions. Instead, some producers
indicated to be members of UniAgroProtect32 that is their representation in the dialogue with the
state. Uniagroprotect has been also indicated as an important source of information regarding
available donor assistance projects in the sector. ACSA, the rural extension network, has also
been mentioned as a good source of production advice, marketing info and business plan
development.
Large enterprises indicated that they do communicate among themselves when necessary,
although are not members of a field-related association. Various attitudes had been expressed
about the need of a sector association and there was no strong opinion in favor of it. It has been
acknowledged that some sort of private / public dialogue does exist, but each enterprise does it
individually. Large processors admitted, however, that if a situation requiring joining efforts has
arisen, they would be ready to act together in order to effect a change.
Concluding Remarks
103. Significant untapped potential lies ahead the Moldovan F&V sector. Concerted effort to
enhance competitiveness of Moldovan F&V products, both fresh and processed, will ensure
stable and expanding markets to domestic producers and processors, thus transforming Moldovan
agriculture into a highly productive and profitable business.
Both fresh and processed sectors critically depend upon modernization of primary
agriculture. The under-developed fresh sector could quickly catch up and achieve international
competitiveness if investments in innovative agricultural technologies and production techniques
(intensive orchards and vineyards, greenhouses, new high-yielding varieties), irrigation
infrastructure and marketing infrastructure (cold storages, packing houses, etc.) occur at an
accelerated pace. The processing sector, much more advanced in its development as compared to
the fresh sector, is currently a significant player on export markets and has excellent opportunities
for expanding its presence there if three major areas of concern are properly ensured: adequate
raw material supply, availability of skilled (and young!) labor force, and development of new
products with high market demand.
Bringing standards for the export-oriented F&V products in line with EU regulations and
achieving EU accreditation are prerequisites to enhancing Moldovas capacity to enter the EU
market. This will serve a dual aim by supporting the penetration of high-end CIS markets that
have similar requirements to those of the EU.
104. Using the Constraints Analysis classification of constraints, the conclusion of this indepth sector study is that the four major constraints for the Fruit and Vegetable Sector are
human capital, market infrastructure, innovation and competitiveness, as well as
investment and business climate. Accelerated investment flows, local but especially foreign,
could rather quickly spur innovation and enhance competitiveness by building new skills,
modernizing market infrastructure (including irrigation) and driving quality standards while
seeking to respond to the demand of international markets. Therefore, removing obstacles to
32
UniAgroProtect is the union of large and medium agricultural producers with 15 regional associations.
53
investments and improving the domestic business environment is a key pre-condition. Identified
constraints of the F&V sector are briefly summarized below:
Inadequate irrigation infrastructure, poor water quality, poor roads increase the cost to
businesses. Irrigation is seen as the greatest constraint to growth of the vegetable sector.
Under-developed market infrastructure (cold stores and packing houses) impedes the Moldovan
fresh produce from reaching the high-end markets in CIS and EU.
Standards that are not adjusted to EU regulations and unavailable EU accreditation block the
development of sector capacity to penetrate these high value markets.
Shortage of long-term finance aggravates the problem further.
Scarce human resources, especially lack of skilled labor force, is strongly connected to the
weak education system that is highly detached from the real sector needs and requirements.
The connection between research-education-extension and ultimately the real sector is weak
and non-responding to sector demands in terms of new technology and skill development.
Restricted access to imported plant varieties hinders quick and easy transfer of innovation down
to the farm level.
Rent-seeking behavior of various state control and inspection bodies is still quoted as an
essential negative factor discouraging businesses.
Last but not least, beneficial and highly needed FDI flow is hampered by the restriction on ag
land ownership.
105. Most identified constraints can and should be addressed by the Government. The
majority requires insignificant financial resources but essential political will in form of
policy actions and institutional rearrangements. Key constraints that require large financial
resources on behalf of the state are irrigation infrastructure33 and standards
harmonization. Market infrastructure (cold stores, packing houses) and part of irrigation
infrastructure (i.e. on-farm irrigation equipment), on the other side, should be private-led
investment initiatives. The state, preferably in collaboration with donors, should support
and encourage these types of investments. Successful business models are critically
important acting as effective catalysts for investments and triggers for the mass replication
of success stories. This is the challenge that presently lies ahead the Moldovan fruit and
vegetable sector.
33
State-managed irrigation infrastructure covers the pumping stations and the distribution systems (balancing reservoirs
and the underground pipe network).
54
2.2. WINE SECTOR

Summary of Findings
106. Detailed analyses of the wine sector, using the method of Competitive Diamond, reveals
the actual state of the sector and the domains, in which the Government and the business
follows to put efforts with the aim of obtaining competitive advantages. The wines sector is a
developed sector, in which investments have conducted the exports, to its biggest extent towards
CIS markets. The massive concentration of wines exports on the market of Russia, has
determined the fragility of industry development. The interdiction of March 2006 imposed by
Russia as for the importation of wines from Moldova was caused by entering of the sector into a
profound crisis. The efforts of the Government of re-opening the Russian market have not been
successful by now. On the other hand, increasing the existent share on other markets and the
penetration of new markets, which, in common, would assimilate the volume of Russian
export, is not possible in the urgency regime. Exports volume recovery at the level of the year
2005, as well as their increase, is possible in the case, in which cardinal strategic measurers on
various dimensions are implemented, directed to final and as rapid as possible liquidation of
constraints described succinctly in the figure 33.
107. The most important constraints in the development of the wine sector are the following
(based the Methodology of Constraints Analyses):
(i) Human capital:
- Qualified and non-qualified labor force deficit;
- Insufficient and outdated level of specialized education.
(ii) Financial capital: high cost and insufficiency of credits for the term of 10+ years, that
procrastinates re-equipping and modernization of enterprises;
(iii) Market infrastructure:
- Weak institutional capacities of the NCVQAP
- Non-adjustment of national standards to the EU requirements and to other high value
markets;
- Inefficiency/lack of actions for promoting the image of the country and of local wines;
- Low quality of the raw material (grapes);
(iv) Innovations and competitiveness:
- Education and scientific research are far from the necessities of the winemaking
business;
- Lack of implementation of production technologies in the style of the New World in
order to be able to compete on high value markets;
(v) Business climate:
- Unsuccessful design of the state trade mark, which imposes additional investments into
equipment;
- Increased costs of doing business: state trademark, certification, technological
instructions, licenses etc.;
- An inadequate system of technological instructions,
- Lack of trust in the judiciary system.
Results of wine sector analyses differs to certain extent from the results of Constraints
Analyses. This is due to the micro-economic character of the sector survey compared to the
macroeconomic character of Constraints Analysis. The results correspond for the financial
capital (with the idea that the high inflation generates high cost of credits) and the business
climate (licenses, brands, certificates, trust in the judiciary system) and do not correspond for
55
the human capital, infrastructure (the quality of roads and wastes of energy are not significant
for the winemaking enterprises) and innovations and competitiveness.
108. The Government can solve a good part of identified constraints, with various costs and
terms. So, the most expensive activities would be: (a) strengthening of institutional capacities of
the NCVQAP or even of a few laboratories on the whole territory of the country (short term), (b)
national standards adjustment to the EU/other states requirements (short/medium term) (c)
modernization/actualization of the system of technological instructions (short/medium term).
Other constraints of the task of the Government might be removed by adoption of decisions and
reformulation of sector policies. Diminution of inflation, which would lead to decrease of the cost
of borrowed capital, represents a permanent special concern of the Government, NBM and the
IMF. The rest of constraints can be solved with the efforts of private business.
109.
Re-launching and sustainable development of the wine sector could contribute to
poverty reduction in rural areas. In the following 5-7 years wineries will continue procuring
grapes from agricultural producers. At the same time, selection of suppliers depending on the
quality offered and the solicited price and more efficient cooperation of winemaking enterprises
with them will take place. The tendency of planting by enterprises of their own vineyards will
stimulate this process. Most probable is that as a result, a part of the population / agriculture
households would not be able to sell grapes if they did not cooperate for improving the quality
and optimizing costs. At the same time, the development of enterprises will create new work
places, non-qualified (vineyards processing) and qualified (wine factories). The demand might be
covered on the account of the labor force - former suppliers of grapes.
56
Figure 33. Competitive Diamond: Wine Sector
Strategy,
Structure,
Competition
Factors
Favorable climate and soil.

Lack of irrigation is not a
problem.
Insufficiency of qualified and
non-qualified labor force.
Personnel fluctuation reduces
the training effort.
Education and scientific
research are overrun and are not
connected to the requirements of
the business.
Credit resources exist. There are
no problems with the collateral.
The cost of resources is high.
Insufficiency of credits per 10+
years term.
Leasing is underdeveloped.
Infrastructure is satisfactory.
Quality of traffic roads is poor
but is not critical.
Roads quality affects the winemaking tourism.
The risk exists of blocking
railways access to CIS markets.
Fiscal and customs legislation is
acceptable; the cost of license is
high for small enterprises.
Lack of trust in the judiciary
system.
State trade mark major
constraint, which imposes
additional investments and
expenditures.
Inadequate technological
instructions.
Cooperation with foreign
experts, chronic dependence on
them.
State excessive role, with elements of

interference, monopoly and un-loyal
competition. Presence of the state in
commercial enterprises capital, existence of
state enterprises.
Demand
Local competition is considered as calm
and healthy.
Presence of investments, foreign and local,
is significant, but insufficient for finalizing Production is mainly exported to
modernization and re-equipment.
CIS markets.
The opinion on the restriction of
Excessive dependence on the
procurement of the agriculture terrene by
market of Russia. Importers often
foreign investors is contradictory.
fix the prices.
Enterprises diversify exports, but
do not possess a short/medium/long
term strategy for getting out of the
crises, and the export prices policy
Connected
is inadequate.
and
The reduced volume of the
Support
internal market is a problem, but
Industries
not critical.
Low capacity of reorientation to
the preferences of consumers on
Vineyards degrade rapidly and have a low
the high value markets. The
productivity. Government grants support at
production of wines in the New
planting vineyards.
World style is necessary.
Enterprises plant own vineyards to control
quality and production costs. The quality of The standardization system is
adjusted to the requirements of
grapes acquired from the population is
Russia, and does not correspond to
unsatisfactory.
Certain raw materials are produced locally; the EU requirements.
Weak institutional capacities of the
auxiliary materials and winemaking
equipment are imported. Competition in the NCVQAP and high certification
costs.
domain is healthy.
Efficient cooperation between winemaking High cost of ISO implementation.
enterprises within associations is lacking.
The efforts of wine business associations
and of the Government for promoting wines
and the country image are insufficient.
Enterprises do not insure vineyards. The
Government grants support.
Participation to exhibitions, forums,
trainings and other events contributes to
enterprises development and promotion on
other markets.
57
FACTORS
110. Moldova benefits of adequate soils and climate conditions, in most part favorable for
growing grapevine. The main regions for cultivating are the Center and the South of Moldova,
where the temperature regime contributes to obtaining qualitative grapes34. The main type of
table grapes is Moldova, white types of wine grapes: Aligote, Rkatiteli, Sauvignon, Chardonnay
in total about 45% of the plantations (annex 16); red types of wine grapes: Isabella, Merlot,
Cabernet Sauvignon, Pinot Noir about 37% of the plantations. In total in 2005 the white types
of wine grapes were situated on 60% of the wine grapevines plantations.
111. The lack of irrigation of the plantations is not conceived as a major problem. The soviet
times irrigation system does no longer exist or is in majority destroyed. Actually in Moldova
there are pump stations and pipe network covering almost 145 thou ha of irrigating land, where
only 29 thou ha are effectively irrigated35. The vineyards irrigated surface is insignificant and
constitutes 50 ha out of 144 thou ha of in bearing vineyards. In general, during the time vineyards
have not been irrigated, because on one hand there were sufficient atmospheric precipitations,
and on another hand the guaranteed sales of wine on CIS market and Russia especially did not
raise the question on productivity of vineyards. Although in an average and long time perspective
this can come back to the attention of the grape producers and wine enterprises. The increasing
risks of longer draught36 can negatively affect the productivity of vineyards. In the context of
increasing wine competition, winemakers could invest more in capillary irrigation systems. As a
result, the vineyards productivity could rise by min 30-50%.
112. The shortage of qualified and unqualified labor force tends to be a major constraint.
This conclusion is different from that of the Constraints Analysis. During the last 4-5 years, wine
factories have been systemically facing with the physical lack in the regions of unqualified labor
force, necessary for seasonal working of vineyards. The seasonal labor force is employed for the
period of February - October for some technological works37, where the average wages are 50-70
lei/day. The need for additional labor force depends on the surface of enterprises vineyards. One
of interviewed companies stated that employment of 50-100 workers increases the monthly costs
of labor by 20-50%. Taking into account the fact that wine factories tend to increase the area of
owned vineyards, the shortage of unqualified labor force already is a problem and tends to
become a major constraint in development. Some enterprises are trying to figure out this issue
(box 4). The wine industry was also in a constant need of specialists of medium and high
qualification (operators, mechanics, engineers, management and marketing specialists etc.), that
constantly leave abroad looking for a better paid job. The Russian wine export crisis from March
2006 has stimulated the process. As a result of sharp decline in wine output, as well as because of
uncertainty of job continuity, some medium-qualified specialists have emigrated seeking better
paid jobs, and the others, especially high-qualified specialists, have accepted job offers at existent
and newly formed wine factories in Russia Ukraine, Romania and Bulgaria. At those factories the
middle aged labor force finds stability, and the younger labor force finds stability and higher
34
Although, in the last few years were registered low temperatures of -15..-28 C as well as bellow 0 degreases during
late spring, which affected significantly the quality and productivity of the grapevines.
35
The Government Agency Apele Moldovei has contractually agreed for irrigation of almost 34 thou ha of
agricultural land.
36
MAAPI is saying that the draught from May-July of the current year didnt affect the production of grapes, and high
temperatures contributed to better quality by raising the grape sugar. Other experts say that the draught affected the
grapes quality. The Hydro-meteo State Service states that the draught may take place in the next year too, due to its
biannual character.
37
These are shortening and fastening the vineyards, weeding, sprouting and harvesting.
58
wages. Reopening of wine exports on Russian market may initiate the increase of labor force
shortage, first of all of medium and high qualification.
Box 4. One of the interviewed enterprises stated that employs seasonal labor force for performing agricultural
technological works on about 750 ha of own vineyard plantations. The company is facing several problems:
(i) lack of labor force, so that the company hardly finds 500-600 persons in the villages adjacent to
plantations, the rest of the active population being left for Chisinau or abroad;
(ii) a major part of available labor force is totally unqualified, and even this part has the intention to leave
for the capital city or abroad to be able to support their family in the village.
For such work, the enterprise pays in lei an average monthly salary of about 100 US dollars. To attract and keep
the local labor force the company intends to introduce a social program that would lead to the decrease of
expenditures of seasonal workers and would partially ensure their families with foodstuffs of first need.
113. The young labor force fluctuation reduces substantially the effects of investments in
training. The low salary does not keep the labor force at the enterprise. The wage is different at
state-owned and private enterprises. Presently, the monthly salary of a high-qualified specialist of
a state-owned enterprise slightly exceeds 3000 lei, and about 300-400 USD at private companies;
the wage of a middle-qualified specialist varies between 2000-2500 lei no matter of the enterprise
ownership. Young specialists receive even lower salaries at the beginning of their activity.
Because of low salaries, which are not enough for purchasing an apartment/house, young people
leave the enterprises searching for a better paid job, even if this one is not related with the
qualification obtained. And all of these, regardless the investment in their professional training.
Therefore, the enterprise is forced to employ other young specialists. Thus, the enterprises are
imposed to hire new young specialists, but it is not sure they wouldnt leave it later.
114. The students knowledge is insufficient, outdated and not adjusted to the needs of the
wine business. The students knowledge base is insufficient and outdated in some fields of
production technologies, because of the 20-30 year obsolescence of technical-scientific base of
specialized education institutions, where the insufficiency of public investments became already
chronic. Thus, enterprises are forced to invest own financial, human and time resources to
improve the knowledge of youth up to the required level38.
115. The business should take on the role of catalyzing vector of the education process, based
on the knowledge received from markets. There is no strategic collaboration between education
institutions and wine enterprises aiming to adjust the study and research programs to the actual
needs of the wine business. That would reduce the amount of investments and the period of time
required to update the young specialists. As exception serves only the acceptance by the
enterprises of students for practical training and offering of material/financial support to
respective institutions. Enterprises could initiate different projects, thus involving professors,
researchers, and students and taking advantage from researches results and high knowledge level
of employed graduates. This is possible providing the government would invest in improving the
quality of the education process in education institutions, as well as would make efforts to
promote the cooperation of the latter ones with producers and stimulate the respective
investments (expenditures) within the public-private partnerships.
116. Wine enterprises require financial resources for renewal of machines and equipment,
planting of vineyards, purchase of grapes and other raw and auxiliary materials for processing
and storing of wines. Large enterprises, highly capitalized, make investments from their own
38
An enterprise stated that a freshly employed graduate is taught by an experienced worker for 2-4 years, after which the
young specialist is able to work independently.
59
resources or from their shareholders. But, the seasonal nature of the activity forces the producers,
regardless of their size, to apply for operational and investment resources on the credit market.
During the interviews conducted wine enterprises stated that there are no problems related to
procedures and documents needed, but to the cost and maturity of extended credits.
117. Enterprises consider the cost of credits as very high, and the term as insufficiently
long. These factors do not allow them to develop in the rhythms imposed by the conjuncture on
the sales markets, especially the external ones. This fact indirectly looks like the conclusions of
the Constraints Analysis39, which defines inflation as a major constraint in the economic
development of the state. Presently, winemaking enterprises borrow resources in Lei mostly from
commercial banks with nominal interest rate of 192% annually, plus banks commissions in
amount of 3-4%. As a result, the cost of attracted resources oscillates between 20-25% annually.
The winemaking business understands that the interest rate depends on the inflation rate, the
nominal level of which in 2006 exceeded 14 % as well as on the bank margin, which on average
constitutes 5-6%. The term of 5-7 years for the investment credits is considered insufficiently
long, to contribute to a sustainable development. Banks can grant long credits from the account
of attracted resources from the IFI and/or from their own capital40. SMEs benefit from IFI
resources. For example WB has granted to SMEs credits in amount exceeding Lei 5 million
through the RISProject. Beneficiaries of IFI resources of the viticulture-winemaking sector are
agriculture enterprises which plant grapes plantations, and less - the small winemaking
enterprises, which procure winemaking equipment and/or plant vineyards. But the majority of
winemaking enterprises are big and do not frame into the respective categories of potential
beneficiaries. Bank deposits do not serve as sources of financing long credits, because money
is invested mostly for short (0.5-1 year) and medium (2-3 years) term at an interest rate equal to
inflation plus 3-4%. Still, the real interest rate41 for credits and deposits in Lei granted in
Moldova is being situated at a reasonable level comparative to the real interest rates of the similar
countries and of those of the region42. In this context, the role of the Government and of the NBM
is to diminish the inflation rate through anti-inflationist policies and to ensure the stability of
other macro-economic indicators.
118. Insufficiency of own resources impose certain enterprises, especially with local capital
(state or private), to upgrade the equipment in a more lent rhythm than they would desire,
and the constraint for the cost and the term of the capital just amplifies this problem.
Delaying of upgrading the equipment moves away in time the obtainment of the following
competitive advantages: wines quality increase, rapid reorientation of the production processes
in accordance with the new requirements of the market, work productivity increase43 and
production costs diminishing. A producer has suggested that an eventual exemption from the
VAT and customs taxes of investments in fixed capital and in grapes plantations would attenuate
the negative implication of the constraint of capital.
119. Credits in foreign currency are granted just for imports. Certain experts support the idea
allowing granting credits in foreign currency to local economic agents for internal payments
purposes, in order to benefit from small interest rates (presently 10-12% annually). But, in the
case of elimination of this restriction, the increased demand for currency credits would lead to the
39
Preliminary Report on constraints analysis in economic development, Government of Moldova, June 2007.
Certain IFI, like IDA, BERD and others grant credits of 5-10 years to banks and other non-bank financial institutions
for supporting the SME.
41
The real interest rate is calculated as a difference between the nominal interest rate and the nominal inflation rate.
42
Preliminary Report on constraints analysis in economic development, Government of Moldova, June 2007.
43
One interviewed companies said that if it were automatized certain productive processes, the output would increase to
some extent, but it would had to fire almost 150 employees.
40
60
increase of their interest rate, as a result of interest rates increase for currency deposits. So,
benefiting from cheaper currency credits would have a short term character and would not solve
in the medium term and long term perspective the problem of increased cost of credits in Lei.
Moreover, granting of credits in currency could lead to dramatic decrease of the purchasing
power of the Leu. That means, that the increased attractiveness of currency deposits would
definitely convince the population and the economic agents to keep their savings in currency and
namely in this type of banks accounts, transferring the currency risk and the risk of inflation on
the shoulders of the banks. Massive procurement of currency (in order to be deposited in banks)
might stimulate the decrease of the exchange rate of Leu. As a result, the prices of imported
goods, expressed in Lei, might increase significantly. As the economy of Moldova is dependent
on the imported energy resources (and also because of massive imports of other products), their
increased prices in Lei would rapidly influence the increase of prices for local goods.
Additionally, inflation might overrun the ceiling-levels established in the strategic economic
documents, fact that, above to all, would deteriorate the relations of Moldova with the IMF and
other donors/investors.
120. Leasing might replace currency credits at the procurement of equipment, but, for the
time being, the respective services market is at the initial stage of development. Presently,
equipment is not transacted on the leasing market, just automobiles in proportion of 80-90%, the
rest of the market belonging to agriculture equipment and machinery. The big winemaking
companies do not hurry to procure winemaking equipment in leasing, because the credits are
more advantageous: the annual interest rate of currency credits (the equipment is imported) is
smaller by 1-2% than the leasing payments, and is about 10-12%; the terms do not differ
significantly, and the companies have own goods which can be accepted as collateral. Still,
leasing would be convenient to small companies, which do not own goods that could be pledged
(with the exception of the equipment procured in leasing) and which forecast sufficient and stable
cash flows. The international leasing market is more attractive than the local one and offers
services with 5-6 % annually, but foreign companies do not trust in solvency of their partners in
Moldova, fact aggravated by the actual crises in winemaking business.
121. Interdiction of Moldovan wines on the Russian market has deteriorated the quality of
winemaking credit portfolio of the banks. Winemaking companies have registered losses as a
result of the Russian interdiction, in total amount of approximately USD 200 million. The losses
are expressed in blocked batches of wine or wine destroyed on the territory of Russia, raw
materials and materials procured and un-utilized, bottled wines sold at substantial reductions,
interest rates to outstanding credits and others. The complicated financial situation of the
winemaking enterprises makes problematic reimbursements of credits at maturity. According to
the information of the AAMV the amount of credits granted to the winemaking sector is almost
Lei 700 million. Presently, negotiations with the commercial banks are underway in order to
restructure credits and avoid insolvency of winemaking companies.
122. In general, the infrastructure is not a major constraint for wine factories, even if some
elements are not satisfactory. Producers do not encounter major difficulties regarding the
quality and access to electricity, water supply and sewage, gasification system and
telecommunications. The extremely bad quality of roads is also not being considered as a critical
constraint, which is different from findings of the Constraints Analysis. However, this affects the
61
wine tourism, and Moldovas image, which could become an important source of revenue for
wine-makers44.
123. The cost of transportation is a significant factor for external markets sensible to prices,
as wine markets are. In general, the transportation cost depends on the mean of transport and
distance to final destination. For example, the cost of transportation for 1 wagon with 45000
bottles to Moscow city (1630 km) is about 4100 US dollars.45 In Russia and some CIS countries
wines are delivered mainly by railroad. In other CIS states and on the European markets the
wines are delivered mainly by trucks. Motor transport is more advantageous on short distances,
300-400 km or small lots. If exports to Europe increase, more vehicles meeting the European
standards will be required. This might create some constraints and generate additional costs.
Ukraine, as a direct channel toward Russia and other CIS states, can significantly affect the
physical access of Moldovan wines to these markets (box 5), as well set up requirements that
increase the final price per bottle of wine delivered. For example, Ukraine requires financial
guarantees for wine in transition, which cost is about 2% of the value of dispatched lot. There
have been mentioned no additional incidental costs.
Box 5. In September 2006 the authorities of Ukraine stopped the traffic on the railroad through MoghiliovPodolsk, the only railroad line by which Moldovan merchandises, including wines, were transported to CIS
countries. The official reason was the reparation works of the bridge nearby. Previously, Moldova refused the
railroad transportation through Transnistria, because of the impossibility to ensure the integrity of merchandises.
As a result, Moldovan merchandises were deprived of physical access to CIS markets. Some experts stated that the
suspension of traffic through Moghiliov-Podolsk was more a political constraint, related to the relations of
Moldova with Russia, than a technical difficulty. Thus, Moldovan companies have incurred direct losses as a result
of stopping of wine deliveries to Belarus, Kazakhstan, Kyrgyzstan, Uzbekistan or Tajikistan. Several months later,
the railroad circulation was resumed.
Presently, Moldova transports merchandises also by the railroads through Transnistria. In 2007 the Government
initiated a project for construction of the railroad line Cahul-Giurgiuleti to foster the transportation of
merchandises through the Port of Giurgiuleti (under construction), as well as to link by railroad the Centre of
Moldova with the South, avoiding the circulation trough Transnistria. The Project is to be finalised by the end of
2008. However, not all the questions regarding the investment efficiency of this project are settled, taking into
account its competition with the Port of Odessa (Ukraine), located approximately at the same distance from
Chisinau as Giurgiulesti, but which represents an important hub of international transportation of merchandises in
the Black See.
124. The general legal framework, with some exceptions, is not a major constraint for
enterprises. Viticulture and wine-making activity (except for wine and viticulture products of
households of population for personal consumption) are conducted according to the Law on
vineyard and wine, nr. 57-XVI dated 10.03.2006, the Program for redressing and development of
viticulture and wine-making in years 2002-2020 approved by the Government on 07.10.2002,
other legal and regulatory acts.
125. Tax and customs legislation has been improved in the last years and do not represent
major constraints related to administration and refunding of taxes, official and unofficial financial
costs, customs clearance procedures, timing etc. The wine business stated that the Government
has made some progress on both directions, and the financial discipline has improved. The major
44
In May 2004 the Government approved the National Program The road of wine in Moldova, in which tourist
itineraries were established to wine factories, churches and cloisters, natural reservations, museums etc. Some wine
factories have created a special infrastructure in order to foster the wine tourism: they have equipped tasting halls with
separate cuisines, places for storing bottles etc.
45
This includes the payment for guaranteeing the security of the wine transported. Cargo insurance is not included in
that price and may be additionally agreed.
62
practical difficulties related to refunding of VAT on exports have been liquidated, and those still
existing are insignificant. The STI permitted in 2003 all exporters (including wine-makers) to pay
other taxes and fees on the account of VAT to be refunded, which made the procedure more
attractive. So, in 2006, about 63% of applicants for VAT refunding made use of this permission
of the IRS46. The term for repatriation of export revenues was increased from 90 to 180 days
from the date of delivery. Thus, this is not anymore a major problem and relieves enterprises
from subjective fines for infringement of repatriation provisions, especially taking into account
that these ones were caused by importers
126. The activity on production/storing/wholesale of alcoholic production is subject to
licensing. The cost of the license has been increasing and decreasing with different altitudes
during all past years, stopping now at 20 thousand lei per year. It is the same for all enterprises,
no matter of ownership or size of the enterprise, or if it produces, stores and/or is a wholesaler of
alcoholic products. In this context, an USAID report stated in 2004 that the cost of the license,
which does not take into consideration the size of wine enterprises, leads to increase of cost of
doing business, especially of those small.47 Thus almost 50 small enterprises of the wine sector
are now being affected.
127. Upgrading of the access system could contribute to promoting Moldovan wines on
external markets... In January 2007 was introduced the state trade mark with the aim of
controlling the exported bottled wine. At the same
time, the trade mark offers to consumers from Box 6. The regulation approved by the
other states the possibility to access complete Government on 26.12.2006 specifies that the
trademark should be pasted vertically on the
information on the procured wine (the producer, bottle, by overlapping the thermal capsule so that
the country of origin etc.), introducing the number by opening the bottle the mark is to be broken.
of
the
trade
mark
at
the
address But the mark can be pasted only on one side of
www.vinmoldova.org. The mentioned system the bottle due to its relatively small size (6 x 1
seams to double international tracing standards of cm). For pasting of these trademarks the existent
equipment of enterprises can not be used, as this
logistic chains of goods, for example, of those one is designed to stick stamps/marks sufficiently
approved by CS1 for wines.48 These standards long, from top-bottom direction, and not laterally,
offer the opportunity to find out, on the bases of by pasting them on the both sides of bottles
bars and codes system, all the participants to the neck. The attempt to use this equipment to paste
value chain of the procured wine: from the the new marks has resulted in tilting of bottles
from the assembly-line.
producer of grapes to the retail trade agent. The
on-line access represents an advantage of the access system and will be solicited, only in the case
of adequate information of external consumers about its existence, as well as on faultless
operation of the system of on-line data supply. Otherwise the system might become, at least,
useless.
128. but the ineffective dialog between the Government and the wine business on
implementation of the trademark has created a sharp administrative constraint in the
sector. Practical implementation of state trademark involves procurement costs (0,2 lei/piece)
and supplemental investments of the producer in special equipment (box 6). This would consume
the financial resources, still scarce, affected by the exports crisis in Russia. Due to the lack of the
46
WB Report Cost of state regulation of enterprises activity, May 2007.

Report on Evaluation of the competitiveness in the Moldovan economy, USAID, BIZPRO-DAI, April 2004.
48
GS1 (ex-EAN International) is an international organization that develops and adopts standards on international and
inter-sector supply and demand chains. The Wine Supply Chain Traceability was developed by GS1 members: wine
association and winemaking enterprises from France, Great Britain, RSA, USA and others. The GS1 standard system is
the most widely used logistical standard system. GS1 has its headquarters in Brussels (Belgium) and Princeton, New
Jersey (USA) and holds offices in more than 100 states (www.gs1.org).
47
63
respective equipment, producers are forced to stick the mark manually, thus increasing the cost
and reducing by 2,5 times the labor productivity. Moreover, several producers stated that the
legislation of some importing countries (for example, Ukraine) does not allow for the
simultaneous existence of their trademark and of another states trademark on the wine bottles
traded in the country. The solution to this dilemma has been identified in our discussions with
wine enterprises: the trademarks should be longer, and this would allow using the existent
equipment for sticking them. AAMV is looking for an optimal solution to this issue.
129. The system of technological instructions is voluminous, ambiguous, old and rigid. The
legislation requires that each type of wine must be produced in accordance with its technological
instruction, elaborated based on national standards. These standards are developed based on
soviet GOSTs and are adjusted only for the Russian market. Instructions are approved by NIVW.
An interviewee stated about the extremely rigid position of the NIVW: some enterprises have
been imposed to require new instructions and pay for them, just for changing one word in the
name of an older wine that had already a technological instruction. The cost of a new instruction
varies between 1020 thou Lei and is paid by the producer, which increases the cost of doing
business. Presently, in Moldova there are about 4 thou technological instructions, the actual
number of the types of wine being less. Many of these are doubled in essence (same wines with a
bit changed names); others are old, because those types of wine are not produced anymore.
130. Interviewed enterprises told that foreign experts are an important source of
information related to external market tendencies and consumer preferences, wine production
and depositing technologies, equipment and technological innovations on raw and auxiliary
materials (enzymes, fertilizers, preservatives etc). But the majority of wine enterprises can not
afford contracting of foreign experts, due to the crisis they are passing through, except certain
wine companies that can afford their services. Cost of the expert services is 20-30 thousand USD.
Presently, companies can benefit from the assistance of the USAID Project Competitiveness
Enhancement and Enterprises Development and TACIS MIDA-MIEPO Project, in form of
services of external wine experts. Experts from France, Italy or other states with wine traditions
are contracted on short-term basis, within the grapes collection, processing and wine-making
period. During this period the external consultants are managing the technologists teams, training
them when required. Companies that contracted individually the experts are benefiting of their
services after the contractual term. Another source of information is sending of employees to
specialized trainings outside the country, participation to different local and external events:
exhibitions with sales and/or specialized, business forums.
131. The situation of the research system is the same as that of the education system: the
technical and material base is outdated; research and studies are far away from the wine business
real needs. The main cause is lack of investments. The poor institutional framework of NIVW
could be one of the factors that have led to higher prices for approval of technological
instructions. If NIVW were adequately financed from the beginning, it would provide researchdevelopment services, sell inventions etc. It would replace by that the foreign offers, and create a
work front for a large set of scientists, researchers and specialists not only from the wine sector,
but from related sectors too.
STRUCTURE, STRATEGY, RIVALRY

132. Moldova was considered the main wine producer of the USSR. The sector has reached
the highest level of development in the years 1980-1985. The vineyards, planted on an area of
approximately 220,000 hectares, where producing an annual volume of 1,150 mill. tones of
64
grapes, of which approximately 42 million DL of wine were produced49. The results were
possible due to the multiple efforts made: renewal, enlargement and protection of plantations and
of the grapevine, modernization of the fixed capital, existence of highly qualified specialists and
of the research in the sector, and not lastly, the existence of the guaranteed market for the
harvested grapes and the produced wines. Two important events after 1985 have put the
beginning of the crises in the sector: (1) fight against alcoholism, initiated by M. Gorbaciov and
the collapse of the USSR at the beginning of 90s. The situation was aggravated in the next years
by the formation of Moldova as independent state, passage of the economy of Moldova (and of
the rest of the USSR states) through the transition period to the market economy, as well as by
the harsh climate conditions during a few years. As a result, the level of demand of wines on
traditional markets decreased the former USSR countries, vineyards areas have diminished and
degraded, the quality and the production volume of wines diminished significantly. Many
winemaking enterprises have found themselves on the brink of bankruptcy.
133. Privatization of winemaking enterprises in the 90s has stopped the bankruptcy of the
sector and has created conditions for survival. A difficult period followed, during which the
winemaking enterprises had to adapt to new conditions of organization of profitable businesses,
to confront the chronic lack of financial resources, to (re)gain partners and establish the needed
relations. Massive presence of Russian investors in the sector has alleviated many of the appeared
problems, among which the most important was the sales market. The relations of investors with
intermediaries and retailers, supported by the preferences of consumers for the traditional
Moldovan wines, have confirmed the market of Russia as a strategic export direction.
134. After the declaration of independence, Russia was the main sales market for Moldovan
wines. Exceptions are the enterprises with European or American capital, the exports portfolio of
which is more diversified. Still, the Russian market is in continuous transformation, the process
taking proportion in the last 5-7 years. Preferences of certain categories of consumers are
changing, and this was observed by the world producers of wines. Unfortunately, the owners and
management of Moldovan enterprises have noticed this fact too late, whilst being sure as for the
unlimited and permanent Russian demand for wines from Moldova. The aggressive penetration
of the Russian market by the European and American winemakers with wines adapted to the new
preferences has created a strong market competition. The quota of Moldova on the market of
Russia was in decrease in the last few years, but that is due to the market volume increase and
presence of other states. However, the quieting and promising fantasies of Moldovan
enterprises did not allow them to orient timely to market changes, to improve quality and, finally,
to increase the competitiveness of wines. The interdiction applied in March 2006, even if it could
have a certain political aspect, raises important questions as for the issue of Moldovan wines
quality.
135. The wine value chain is different for collection-processing-producing stages and
remains the same for distribution stage. Some wine factories collect grapes from agroproducers, produce bulk wine, pack it to local bottling companies or export it to be bottled by
foreign companies. This phase assures a small value added, and some companies are trying to
increase it by positioning on the nearby segments in the value chain: plantation of own vineyards
and purchasing of bottling equipment (fig.34). Other companies, more developed, harvest grapes
from their own vineyards, cover the grapes deficit from the agro-producers, and operate all
processing stages of grapes and producing/bottling of wines, getting a bigger value added. The
distribution and trade segment of the value chain is the same for both types of enterprises,
because it doesnt belong to them.
49
The Program on renewal and development of viticulture and wine-making in 2002-2020.
65
136. The need of making more efficient the use of financial resources led to separation of the
production system from the distribution and trade systems. The existence of the distribution
and trade systems within the wine companies would complete the value chain and would generate
major profits. Unfortunately companies do not have sufficient financial resources for maintaining
of these systems. The producers have 1-2 authorized distributors for the local market and
separately some partner-importers for each of the external markets. Partnership contracts are
signed for long periods. The set of products and regions of service are divided between the
distributors. The maximum margin allowed for local distributors is fixed at about 15%. Some
producers are not present on the local market and have concentrated only on exports.
S u p e rm a r k e ts
W h o le s a l e r s
F o o d s to re s
G ra p e
p ro d u c e rs
O w n g ra p e s
P r i m a r y w in e
f a c t o rie s
B o t t l in g
e n t e r p r is e s
Loc al
D is t r i b u t o r s
C o m p l e t e w in e
e n t e r p r is e s
F o r e ig n
Im p o rte rs D is t r i b u t o r s
R e s t a u r a n ts ,
b a rs
END
C o n s u m e rs
N ig h t c lu b s
W h o le s a l e r s
P ro d u c e rs
s to re s
Fig. 34. The value chain for Moldovan wines
137. Government holds an important role in ensuring sustainable development of the wine
sector. Thus, the policy of the state on strategic development, exports promotion, administration
on behalf of the state of the capital shares in the winemaking enterprises etc. is implemented by
Moldova-Vin. AAMV has got 3 types of enterprises under its management (see figure 35). The
idea was expressed, according to which the Government holds an excessive role in the sector, due
to the attitude inherited from the Soviet period and that this role does not correspond any more to
the realities of the actual winemaking market. So, the Government needs to review its position in
the wine sector, in order to boost the sectors re-launching and development, by moving towards
markets requirements.
138. Maintaining some wine enterprises in the state property is the policy of the state,
oriented towards maintaining national values in producing and consuming the wine. For
instance the Wine Company Cricova SA, local leader in producing sparkling wines (almost
40% in 2005), is declared by the law as an object of cultural-national patrimony of Republic of
Moldova. This status is extended on the oenotheque, galleries and underground structures,
constructions and the related land, except equipment and operational capital. The Company was
privatized in 1995, and shares were transmitted in the property of the Government. The enterprise
66
has benefited a few times of different types of assistance from the State. The activity is running
normally; the profitability is under 10% due to certain infrastructure objects maintained by the
Company.
139. The wine sector is highly fractioned. The wine and strong drinks sector is represented in
total by 203 enterprises producing and/or exporting alcoholic products (table 5), including 11 in
which the State holds 32-100% of the capital and out of which 2 (one from Russia and one from
Ukraine) are in an insolvency stage (fig.35). The wine sector is represented by 177 enterprises.
Table 5. Categories of economic agents from the wine sector, 2006
Nr./o
1.
2.
Category
Primary wine-making enterprises50
Bottling enterprises
Including with State share
3.
Primary wine-making and Bottling enterprises
4.
Alcohol producers, vodka and other strong beverages
5.
Exporters (non-producers)
Total
Source: AAMV
Number of enterprises
75
35
4
67
4
14
1
12
203
Fig. 35. The Government of Moldova role in the wine sector

GOVERNMENT OF MOLDOVA
Agroindustrial Agency Moldova-Vin
State Institutions
State Organizations& Enterprises
Joint Stock Companies
State Inspectorate on
Supervision of Alcohol
Production
National Center for Verif. of

Quality of Alcoholic Products
Wine Company "Cricova",

Cricova, mun. Chiinu,
100% state property
National Institute for

Viticulture and Wine-making
National College for Viticulture

and Wine-making
Center for tracking the ethilic
alcohol and alcoholic products
Quality Wine Company
"Miletii Mici", vll. Miletii
Mici, rn. Ialoveni
Food Products Company,
Balti
Wine-viticulture Company
"National-Vin, Chisinau
Briceni Alcohol Factory,
Briceni
Barza Alba, Balti,

100% state property
"Aroma", Chiinu
100% state property
"Chirsova", Chirsova,
rn. Comrat,
65,15% state property
"Vinuri Ialoveni", Ialoveni
60,414 % state property
M.E. "Bautwerk", Briceni
51,04% state property
"Euro-Alco", Chiinu
32% state property
Town of Wine, Chisinau

50
Primary wine making means collection and processing of grapes and production of wine as raw material.
67
Lvov Wine Factory

"Moldvinprom", Ukraine
(insolvency procedure)
"Sredneuraliski vinzavod",
Sredneuralisk, Russia,
(insolvency procedure)
140. Large enterprises are drivers of sector development. Despite high fractioning, there could
be observed some large companies dominating certain segments of the market. Local and foreign
investors from Russia, USA, Romania, Germany, France etc. are present in the capital structure
of private wine enterprises. The sector is dominated by some large companies (fig.36, 37). These
have modernized partially/totally the equipment for producing and depositing wines and
concentrated on the quality of grapes.
Fig. 36 Sparkling wine champions,
thou dal, 2005
Fig. 37 Grape wine champions, thou dal, 2005
DK Intertrade
5%
A lte
Wine
International
Project
5%
88
80
SA "Nis -Strug u ra "

.S. "Mile tii Mic i"
71
SA "V itis Hn c e ti"
75
1 53
.M. " V is mo s " SA
39 7
S.A . "Cric o v a "
Source: AAMV
Acorex Wine
Holding
4%
Vinria
Bostavan
5%
1 57
SA "Bas v in ex "
Lion Gri
5%
1 00
200
30 0
4 00
Alte
71%
Asconi
5%
Source: AAMV
Large enterprises are drivers of the sector development. In 2006 126 LE employed 75% of
industrial-productive employees of the sector, and in 2005 they produced almost 87% of the total
production (annex 4 / table 4.7)
141. Restriction on purchasing arable land by foreign investors generates contradictory
opinions. Some experts are supporting the cancelling of the restriction in order to stimulate
foreign investments in agriculture and agro-processing (including viticulture and wine-making).
Others are in favor of the restriction, stating that it is actually possible to invest in the land which
could be rented for 99 years, and that some investors could speculate over the land price,
promoting later the change of the land destination from arable to construction land. The final
decision will be taken by the Parliament.
142. The political and economic instability and non-attractive investment climate for a long
period of time did not favor the entrance in Moldova of a world known strategic investors with
producing technologies, management and market strategies and suppliers. In Armenia for
instance, the French company Perno Ricard is present holding 40% of the wine production and
promoting the Armenian brands on the European market. A similar situation is in Georgia. On the
68
other hand, according to some estimations, about 80% of the local wine production is held by the
Russian investors51.
143. Businesses consider the local competition as tough and healthy Interviewees did not
mention any major issues related to unfair competition. They stated that the local market is
already divided, stable, the entry is limited and everybody knows his clients.
144. except cases of state interventions.
This is the case of using the principle of one
window as a temporary solution to re-starting
wine exports to Belarus markets (box 7). This
case does not comply with World Trade
Organization principles, member of which is
Moldova. Another case took place in 2004,
when the government informally imposed the
wine factories to accept grapes and wine with
reduced quantity of sugar from population and
companies, due to early autumn degreases
(grapes Lidia, Isabella, Moldova etc.). As a
result of these kinds of interventions the
businesses trust less in the proper functioning
of state institutions. Moreover, some experts
paid attention to lack of trust in the judiciary
system, the security of the business being
jeopardized. In essence, these represent major
constraints to strategic development of
enterprises.
Box 7. In April/May this year the export of bulk wine

to Belarus was conducted through the MoldovanBelarus an mixed company Moldbelvin, as a
solution to the issue of stopped experts during the first
3 months of 2007. From the Moldovan side the
enterprises
was
founded
by
the
private
companyAgro-Vin Bulboaca SRL, which was
selected to represent Moldovan interests within the
new company Moldbelvin..The selection process
was totally nontransparent, no tenders were organized,
and no procedures were respected according to the
public acquisitions legislation. Benefiting from the
special status, Agrovin-Bulboaca was purchasing
bulk wine from producers at one price and selling it at
a bigger price, getting the difference. Producers were
disadvantaged twice: (i) they couldnt get the export
prices to their products and (ii) they had to pay VAT
on deliveries to the Agrovin-Bulboaca. Although
there was the restriction in force, some producers
succeeded in exporting individually a specific quantity
of bulk wine to Belarus. The total exports of wine to
Belarus within April-May through Moldbelvin
comprised almost 340 thou dal out of 815 thou dal.
20
0
06
ia
n
/m
ai
20
05
20
04
20
03
20
02
20
20
01
145. Even though there are long term

partnership relations, sometimes the Fig. 38. Wine exports by types of wine, thou dal
exporters meet difficulties with payments in
300,000
time by importers. Importers often make the
250,000
condition of payment, only after selling a part
200,000
of the delivered lot. Exporters hold the entire
150,000
risk of non-payment. Some cases have taken
100,000
place when the payment constituted only 5060% of the value of delivered lots. The delays
50,000
are often longer then 3 months, making an
additional pressure on the cash flow of the
exporter. The exporter is imposed to obtain
short term operational credits, often with
Sparkling w ine
Grape w ine
Wine material
higher interest rates then usual, which create
pressures to increasing the cost of final
Sourse: NBS
products. Some exporters use the bank
guarantee mechanisms in export operations with their partners. Other bank products are not
largely used, due to lack of trust between the partners, low business culture etc.
51
Report on Evaluation of the competitiveness in the Moldovan economy, USAID, BIZPRO-DAI, April 2004.
69
DEMAND
146. Grape wines dominate in the structure of winemaking exported products. Exports
increased in 2001-2005 based mainly on this type of wine, whilst exports of sparkling wines and
the wine material did not modify significantly (fig.38). In 2006 wine exports decreased by
approximately 42% compared with 2005, and in the first 5 months of the year 2007 exports have
constituted just 11 % compared to the level of the year 2005 (annex 17 / table 4).
147. Wine industry is mainly oriented to exports. Wines production is traditionally exported in
proportion of 94-96 %. Until 2005 export of wines from Moldova exceeded 1% of the total world
annual exports (table 6), placing 9th-12th among the biggest world exporters. The main direction
of wines were the CIS markets, the champion being Russia, which in 2005 imported a record
quantity of wines in the last 6 years, the value of exports exceeding USD 200 million (fig. 39). In
2006 exports of wines to Russia did not exceed of the level of the year 2005, due to intense
deliveries during the period before the interdiction in March.
Table 6. World wine & vermouths market, thou USD
Moldova
World
Moldova share in
Exports
Exports
World exports, %
2001
156,378
13,197,701
1.2
2002
171,939
14,677,035
1.2
2003
216,380
17,901,680
1.2
2004
250,597
20,301,641
1.2
2005
279,190
21,067,239
1.3
2006
161,768
Source: ITC, www.intracen.org, NBS 2006 data.
Years
R
us
U ia
kr
ai
n
O
th Be e
er
la
ru
C
s
IS
st
at
es
O
th
er EU
st
at
es
148. The closing of the Russian market has led to the increase of wine exports to other states,
but did not compensate sales lost on Russian Fig. 39. Value and destinations of wine exports,
market. So, in 2006 exports have doubled to thou USD
Ukraine and the EU (especially to Germany,
250000.0
Latvia, Poland and Slovakia) and have increased
200000.0
approximately 9 fold to other states (Romania)
(fig. 39). In 2006 exports to Belarus and other CIS
150000.0
2005
states remained at the level of the year 2005. The
100000.0
2006
increase of the value of exports to other states in
2006 has compensated just 1/3 of exports
Jan-May
50000.0
2007
decrease to Russia. In the first 5 months of the
0.0
year 2007 the exports to Ukraine and Belarus
amounted 1/3 and respectively, of the level
reached in 2006, followed at a small distance by
exports to other CIS and EU states (including
Romania and Bulgaria).
Source: NBS
149. Moldova and Georgia were replaced on the Russian wine market mainly by Russian
wines and to a smaller extent, by the wines of other countries. According to the information
of the Union of Participants to the Alcohol Market (UPAM, Russia)52, the share of Russian wines
on the internal market has increased from 46% before the crises to 65% after the crises. Thus, the
common brands of local wines have increased in price by Rubles 30-40 ruble, and were replaced
on their price segment by wines of lower quality. The increase of Russian wines quota was
52
UPAM (Rusia), www.newizv.ru/news/2007-07-27/73291/.
70
conditioned, also, by the impossibility of Bulgaria to replace completely Moldova, in spite of its
quota increase on the Russian market. In the first quarter of this year the quota of Bulgaria for
imports to Russia has exceeded 31%, followed by France
(19%), Spain (12%) and Italy ( 9) (table 7). In the Table 7. The main wine importers to
context of general decrease of imports, Russian specialists Russia, Q I, 2007.
#
Country
Share in
remarked the significant increase of the imports of the wine
imports
material, which explains the increase of local production of
1
Bulgaria
31.4%
wine. So, if the import of grapes wine in 1st quarter of the
2
France
19.3%
year 2007 has decreased by 29% compared to the first
3
Spain
12.3%
quarter of the year 2006, and the imports of sparkling wines
4
Italy
8.8%
increased in the same period by 70%, then the imports of the
5
Germany
6.9%
wine material practically doubled53.
6
Chile
6.7%
7
Argentina
3.7%
150. The Russian related wine export crisis has brought
8
Ukraine
3.5%
to light certain strategic deficiencies of the Moldovan
9
Hungary
2.9%
wine sector The huge capacity of ease assimilation of
10
RSA
1.0%
Moldovan wines by the Russian market needed no
Source: UPAM (Russia)
significant wine promotion efforts from the business. The
success has been guaranteed by positioning of wine into the lowest segment, which is priceless
but voluminous. However, the wine quality was not always the highest. Very often importers
were fixing the maximum price per bottle for producers, for example at 0,7-1,2 US dollars. Thus,
producers were forced to use raw and auxiliary materials of lower quality, and certification
laboratories had to close their eyes to certain indicators. According to some experts, exports in
Russia were possible only due to personal relations with importers, avoiding any investments in
promotion. Inefficiency or more often, the lack of marketing actions, like promotions,
presentations etc. have directed the consumers to newer wines, more prestigious, of better quality
and at the same price level (Spanish, Bulgarian, French, Italian etc.). Weak popularization and
often lack of country image, especially outside the East European countries reduce from the very
beginning any efforts on setting up of partnership relations. Moldova is not associated with its
wines on European and international markets, like Germany with their cars or Switzerland with
their banks, watches and chocolate. Also, Moldova does not have a wine signature to favorably
differ from other producers.
151.
and has reoriented the strategic objectives of producers.
a) in short term: sales increase of bottled wine on internal market are forecasted to grow
annually by 5%-10%; exports increase to Romania (the market increases annually by
approximately 40%), Poland (+26%), Ukraine (+8%), Belarus (+13%), Kazakhstan (+13%),
Kirgizstan (+55%)54. The return on the more selective market of Russia is being expected
(which is annually increasing by 14%), but most probable it will take place only with quality
and brand wines on the low medium price segment.
b) in medium and long term - penetration/ increases of shares on the markets of Great Britain,
Germany, China, USA, Canada and Northern Europe. Some wine makers stated that it would
be very difficult to penetrate the EU markets because of lack of contacts with local partners.
Lack of facilities trough GSP+ and CEFTA reduces the prices attractiveness. Experts
consider that preferences have not been given in order to protect the internal EU market,
which is oversupplied by own and New World wines. Locally, enterprises will continue
53
54
Ibidem.
International Trade Center, www.intracen.org, 2003-2005
71
making efforts on own supply with grapes, re-equipment and upgrading of production
processes aiming to diminishing production costs and control over the quality of goods.
Fig. 40. MDL official exchange rate.
18
16
14
12
10
8
6
4
2
III
- IV
,9
Q
9
III
- IV
,0
Q
0
III
- IV
,0
Q
1
III
- IV
,
Q
02
III
- IV
,0
Q
3
III
- IV
,
Q
04
III
- IV
,0
Q
5
III
- IV
,0
6
152. During the interviews, it was also

mentioned the issue of strong Leu, which
could diminish revenues from wine exports.
These concerns are based in the case of exports
expressed in USD or Euro, which have been
the most volatile in the last 7 years (fig. 40). At
the same time, it should not be forgotten, that
the majority of exports have been made to
Russia, the transactions having been expressed
in USD. Exporters could have encompassed
certain losses due to the strengthening of the
Leu towards the Euro or the USD only in
certain periods of time, for example quarter
III/03 quarter IV/04 for exports expressed in
USD. The evolution in the first half of the year
2007 of the Euro and of the USD indicates us
the fact that exporters have not been
advantaged when exporting the stock wines of
the year 2006.
EUR
ROL/RON
UAH
USD
RUB
Source: NBM, www.bnm.org

Note: The exchange rate of MDL to ROL/RON
(Romania) takes into account the denomination of
the latter.
153. Consumer preferences differ from

country to country. Preferences of WestEuropean consumers are based on dry wines with minimum 13% alcohol content, often enriched
by fruit tastes and other tastes. Unlike West-Europeans, East-European consumers prefer sweet,
semi-sweet and desert wines. In this context, certain experts said that the segment of ex-socialist
Diaspora from European and American countries, who really buy the Moldovan wines in those
countries, will be very soon satisfied and has no major growth capacity. Despite that, the wine
companies are very optimistic about these markets and set up strategic views on the following
priorities:
a. Acceptance by retail networks,
b. Competitive prices within the low-middle segment,
c. Wine promotions.
On the other hand, the bottled wines market of Russia is becoming more and more sophisticated,
due to the increase of the payment capacity of the population and the prestige of consumption of
European wines and of those from the New World. Kyrgyzstan prefers grape wine and does not
import vermouths, which is different from Kazakhstan, of which vermouth market is growing
faster that that of grape wines. The Romanian market is growing vertiginously on grape wine
segment and slower on vermouths. Russia, Ukraine, Azerbaijan and Romania are significantly
increasing the volumes of imported bulk wine and of wine-making material. These countries are
investing into their own production of wines.
154. European consumers prefer more wines from the New World. This is the reason why in
Europe, the biggest exporter and consumer of wines in the world, prices are decreasing because
of oversupply of wines, especially from the New World. So, in the EU the consumption of local
wine decreases (especially of French ones) on the bases of the increase of consumption of wines
of the New World. In the last years the Council of Europe has granted compensations to
winemakers for distillation of unsold wines reserves. But in the nearest future EU plans to stop
72
this practice, as well as to apply more drastic

measures for increasing European wines
competitiveness compared to those from the New
World (box 8).
Box 8. The European Commission initiated in

June 2007 a project to reform the wine industry
of the EU, in order to maintain the market share
compared to the producers from the New
World (Australia, USA (California), Chile and
South Africa).
In this order of things, some of the proposed
instruments are the reduction of surfaces of the
less efficient vineyard plantations with circa
200 thousand ha (from a total of 400 thousand
ha) and payment of allowances to farmers that
destroy their own plantations. The project is
under discussions.
155. The prices of wines exported from Moldova

did not register big fluctuations in the period
2001-2005, because the biggest part of wines was
assimilated by Russia and other CIS countries,
considered stable markets for the Moldovan
wines, positioned traditionally on the low price
segment (fig. 41). This win-win situation was
favorable for producers and importers, where the
small profit per unit was multiplied by the big
volume of exports. The increase of prices in 2006- Fig. 41. Wine export prices, USD/dal
2007 is mainly duet to increase of prices to raw
30.0
materials, transportation, energy resources, as well
25.0
to reduction of exports to Russia and penetration of
20.0
non- traditional markets with small batches (0,1-3,0
thousand DL) at significantly increased prices. This
15.0
tactics was applied by winemaking companies, in the
10.0
desperate trial to compensate the sooner the possible
5.0
the sales lost in Russia. It is understandable the
0.0
complicated financial situation of the winemaking
2001 2002 2003 2004 2005 2006 2007
companies, which have encompassed losses because
of the Russian interdiction and/or which still have
Sparkling wine
Grape wine
wines in stocks. But the detailed analysis of exports
Wine material
indicates a chaotic situation in the exports prices
policy of the winemaking companies. This leads us Source: NBS
to the conclusion, that exporters have not developed a marketing strategy for short/medium/long
term, including an adequate policy of prices, which would take into account the crises in Russia,
would indicate the method of liquidation of appeared internal problems and would contribute to
diversification and strengthening of strategic positions on external markets. So, the use of the
tactics of rapid major profits instead of the tactics lower profits, but increasing, in the context
of a sustainable development, have led already in 2007 to diminishing the imported quantities on
external markets or even to the refusal of importing any more (Fig. 39).
156. The reduced volume of the internal market represents an important, but not critical
problem in the development of the sector. This fact was mentioned by all persons interviewed.
On the internal market, industrial wines compete with home-made wines, wines of farmers sold
on local markets and imported wines, actually of small quantity. The quality of industrial wine is
higher, but consumers often prefer home-made wines or those produced by farmers, which are
sold at reduced prices. Also, wines compete on the internal market with strong drinks with
relatively reduced cost (e.g. vodka). Producers intend to undertake efforts of increasing the
culture of wine consumption, and the Government is expected to undertake actions to counteract
contraband with strong drinks. The interviewed specialists are forecasting the annual increase of
the internal market by 5%-10%.
157. Non-adjustment of Moldovan standards to EU standards represents a major constraint
in the access of wines on high value markets. While delivering to the EU, producers are bound
73
to certify wines at the certification body of the importing country. This is because the NCVQAP,
being authorized to issue certificates for the export market (Russia, the EU certificates VI 1,
and others), does not possess necessary capacities for performing complex specific analyses. But
deliveries can be effectuated only after certification of wines in accordance with national
standards. Thus, certification costs increase arithmetically. Moreover, the producers are obliged
to own laboratories certified within the NSAPC. Large enterprises own well equipped
laboratories and qualified personnel, which permanently verifies the physical-chemical and taste
indicators of the produced wines. Ulterior, the state certification comes just to confirm the results
of the effectuated analyses by the laboratories of the enterprises. Thus, in the case of deliveries to
the EU, the wines are practically examined three times: by the laboratory of the enterprise, by the
certification body of the importing country and by the NCVQAP. Certain enterprises (especially
the large ones) are unsatisfied with the lack of trust of the state in the winemaking business, by
imposing the obligation of national certification, in the conditions when (i) the wines are certified
in the importing country and (ii) the state certifies the laboratories of enterprises. The solutions
would be (i) adjustment of national standards to the EU requirements and (ii) establishment of the
voluntary character of state certification of wines, produced by enterprises, the laboratories of
which correspond to certain strict criteria.
158. Implementation of the new system of state mandatory certification of wine products
represents another major systemic constraint in the development of the sector. The
infrastructure of certifying services was restricted from 5 to 1
provider (lab) - NCVQAP, controlled by AAMV. But this Box 10. We were accepted by a
enterprise is facing a stringent deficit of institutional, human British network of about 15000
to expose our wines
and financial capacities (Box 9). This leads to delays of the supermarkets
for selling. We were ready to
certification and to failure in analyzing sophisticated indicators fulfill the fixed condition of
required by the EU standards. As a result, financial and time delivering the products within 10
costs have substantially increased, and the delivery contracts are days. But due to certification this
jeopardized (Box 10). Additionally, some specialists raised the became basically impossible.
issue of breach of antimonopoly legislation, by investing
exclusive functions only to NCVQAP laboratory.
159. The increased cost of voluntary certification determines the relatively low number of
wine enterprises that have implemented the quality management systems ISO 9000 and ISO
22000. This is minimum of 20 000 euros and can be afforded only by big enterprises. Presently
ISO and IFS standards are implemented in 22 alcohol production enterprises out of 191, some
enterprises being in the process of implementation. USAID offers free assistance in this field to
all soliciting wine enterprises, covering 50% of the certification cost55. Preparing and auditing
(certification) of the enterprise is done by specialized private companies, on contractual basis.
Producers choose by themselves the consultants in the certifying services and auditors, mainly
depending upon the price criteria. Both the consultants and auditors can be from Moldova or
from abroad. One of the wine-producers interviewed told us that the process of preparing and
certification of his enterprise was done by Moldovan companies, because of the lower prices
comparing to the ones solicited by international companies.
55
USAID Project Competitiveness Enhancement and Enterprise Development
74
Box 9. Up until autumn of 2006 the testing and certification of alcoholic products (including wines) was done by 4
laboratories certified by MSS, situated in the cities Chisinau, Balti, Cahul and Ciadir-Lunga and also by CNVCPA
(Chisinau). The conclusions of the activity analysis of respective laboratories and their relationships with the producers
(especially, after the ban on exporting wine products to Russia) were the basis for the decision to concentrate the state
control on certifying alcoholic production in one enterprise CNVCPA.
Although the amount of work increased enormously, the enterprise was not sufficiently equipped in order to test
qualitative and within minimum time the collected proofs. Thus, CNVCPA lacks adequately trained staff for fulfilling
the solicited works, which takes longer time on collection and processing of proofs. At present the minimum time
required for processing is of 2 days/proof, the maximum capacity is of 70 proofs per day. The regulations establish the
maximum term of 3-5 days per testing/certification. In reality the procedure takes 1-3 weeks.
The main devise of testing is older then 10 years and it not only takes a long time, but it is not foreseen for testing
some physical-chemical parameters that are required by present quality standards of many importing states. The rest of
the equipment are worn out not only morally and physically, but also, can not meet the present requirements of testing
in accordance with the international standards.
The system of collecting the proofs. The procedure of collecting the proofs by the worker of the laboratory directly
from the enterprise out of the respective consignment is welcome. But the CNVCPA is serving all the producers from
Moldova and it does not have the necessary staff and cars in order to go at the same time to different enterprises.
Moreover, the old system provided that the whole consignment of a certain type of product was certified (ex. 100
thousand bottles), but the new system provides that each lot is certified (1 product) destined for delivery (ex. The lot
can be loaded in 1 truck, 5 trucks 5 lots 5 certificate x 1200 lei = 6000 lei. The influence of the cost of certification
upon the price of one bottle of wine is bearable in case one truck is loaded with one type of wine. In case of delivering
with one truck more types of wine in small lots, the cost of the certification increases significantly the price for one
delivered bottle.
The increase of the number of clients, as well as collecting the proofs from the lots for delivery created the
insufficiency of depositing spaces of the collected proofs.
Even though the services are rendered for a payment, the enterprise doesnt have sufficient financial resources for
buying regularly the necessary materials for laboratory testing. This is a result of the lately increase of the price for
these materials.
It is necessary to point out that the issues mentioned above are relevant in the situation of decreased soliciting of
certificates, due to the lack of exports to Russia. Restarting the exports, as well as requests to check some sophisticated
indicators by Russia or other countries, in the present situation of the CNVCPA, could lead to slowing down
significantly or even blocking the certification process.
RELATED AND SUPPORTING INDUSTRIES

160.
The quality of vineyard plantations is low and the rate of degradation continues to be
faster than the one of plantation. In 2006 the area planted with Viticulture must be together
vineyards constituted about 150 thousand ha, out of which 140 ha with winemaking.
are fruitful. These include vineyards of table grapes (table 7)
Table 7. Vineyard plantations, thou ha
Vineyards, including
- fruitful
Source: NSB
1998
166
157
1999
154
147
2000
149
142
2001
154
150
2002
152
148
2003
149
143
2004
146
138
2005
148
140
2006
150
140
Vineyard plantations has significantly decreased from 220 thou ha in 1985 (see the Chapter
Strategy) to about 140 thou ha in 2006. There were different reasons of reduction: the fight
against alcoholism during the times of Gorbaciov, collapse of USSR and breaking of commercial
relations in the following periods, natural disasters, lack of investments etc. Presently, of
vineyards need to be rooted out (fig. 42), 90 thou ha are more than 16 year aged (fig. 43, annex 17
/ table 1) . The Government makes efforts on renewal the viticulture, aiming to have 100 thou ha
75
of vineyards in 202056, replacing old plantations and those that will get older during the time. In
this context it worth mentioning the EU intention on reducing of vineyards as one of measures
toward increasing the competitiveness of own wines (box 8).
Fig. 42. Industial vineyards quality, 2006, thou ha.
Fig. 43. Industial vineyards age, 2006, thou ha.
26
27
11
18
13
60
71
Good
Satisfactory
1 - 4 years
5 - 15 years
Unsatisfactory (to be rooted out)
16 - 25 years
25+ years
Source: AAMV
Source: AAMV
161.
The average productivity of vineyards is low and decreasing due to the advanced
age and failure in processing with chemicals according to the plant protection
technology (Annex 3, table 3.9). Vineyards reach the
maximum productivity within the period of 7-20 years. 5-7 tones of grapes per ha is
Nevertheless, the crop is inversely proportional to the quality. not profitable anymore.
The old vineyards that must struggle to survive tend to produce
the best grapes that have the potential to offer the best wine, provided that they are protected
against diseases. Ideally, profit maximization requires an optimal compromise between crop
and quality57. The total output of grapes in 2006 reached 466 thou tones and decreased by
10% as compared to 2005 (table 4). Also, the average output of grapes is decreasing.
Table 4. Output of grapes*
1998
343
1999
465
2000
704
2001
505
2002
641
2003
677
2004
686
2005
519
2006
466
22
Average output,
chintals / ha
Source: NBS
* Note: including table grapes.
31
50
34
43
47
50
36
32
Total output of
grapes, thou tones
162.
Wine factories tend to create/increase the areas of own vineyards, trying to
reduce the production costs and improve the quality of grapes, in the same time, taking
advantage of the financial support from the state58. The average acquisition price of wine
grapes in 2006 was 2.55 lei. The share of grapes cost in the effective cost of a bottle of wine
(less taxes) is about 30-40%.
56
The Program on renewal and development of viticulture and wine-making in 2002-2020.

Report on competitiveness evaluation in the economy of Moldova, USAID, BIZPRO-DAI, April 2004.
58
For 2007 the aid for supporting the creation of vineyard plantations constitutes 25 000 lei/ha (about 2000 US dollars),
which can be increased by 5-15 thousand lei depending upon the planting stock. The aid is considered to be insufficient,
taking into account the initial investment of at least 10 000 US dollars per 1 ha of vineyard till the harvesting year (the
fourth). In the same time, wine-makers pay special taxes to the fund for viticulture revitalization.
57
76
163.
Producers are not satisfied with the quality of purchased grapes, especially the
ones from the population. The sorts are often mixed, the grapes were not protected
according to established technologies (because of the lack of money), were not harvested on
proper time etc., thus, the qualitative parameters being significantly affected. Businesses
mentioned the necessary governmental effort toward training/extension services to farmers
in terms of new plant protection technologies, chemicals, suppliers etc. Presently, the large
enterprises harvest their own grapes and purchase only the necessary quantity from other
companies and population. The average acquisition prices for wine grapes are presented in
the table below:
Table. 5. Average acquisition prices for wine grapes
Lei/kg
2000
1.37
2001
1.77
2002
2.27
2003
2.86
2004
2.25
2005
2.98
2006
2.55
Source: NBS
The interviewed wine-makers stated that is practically impossible to significantly increase

the acquisition prices of grapes due to tough price competition on external markets. Often the
wine enterprises pay the money with a 6-12 month or longer delay. The practice of
enterprises purchasing grapes from population would be reduced significantly in the
following years, because of production need satisfied out of own grapes59. Thus, structural
changes on this segment of wine-making will motivate the population and economic entities
to reassess the medium and long-term perspectives of viticulture: they could join and offer
larger quantities of grapes of high quality at reasonable prices, or could leave this segment.
164.
In the raw and auxiliary materials supply sub-sector there is a healthy
competition, and wine-makers do have the possibility of selection. There are different
raw and auxiliary materials used in the production process. Ferments, preservatives etc. are
used in the processing and depositing stage, whilst bottles, labels paperboard boxes are used
at the bottling and packaging stage. The cost of all materials, except grapes (less respective
taxes) constitutes 25-30% of the cost of a bottle of wine. Some raw materials are local:
labels are printed at private typographies, paperboard boxes are of Chisinau Paperboard
Company or MoldcartonS.A, and bottles are produced at the Chisinau Glass Container
Company or Floresti Glass Factory. If wine companies are not satisfied with the local supply
(for example, there is a lack of specific bottles as souvenirs), they are imported from other
countries, for example Romania. There are companies that have purchased equipment for
bottles production. All the chemicals (adjuvant, ferments, enzymes) and cork are imported.
Interviewees said no problems with import of all this stuff. Every company has its own long
term suppliers. They keep up-to-date the wine companies about the latest innovations in their
sectors, so producers have the possibility of decision between old and new offers.
165.
There is no room for cooperation, when a harsh internal competition takes place
in the small local market. The enterprises do not join their efforts for purchasing raw
materials and thus, do not get bulk discounts. According to opinions of some producers these
efforts will not take place in the nearest future because of competition. For instance, some
producers draw attention to the unique form of the bottle, buying equipment for their
production or ordering special bottles to foreign producers. However, there are some
exceptions: a company told us that 2-3 times a year they join with another 2-3 companies for
purchasing specific raw materials. The discount amounted almost 5%. Generally, deliveries
are also done individually. There is lack of efficient cooperation also within the Union of
59
Some producers implement investment programs for planting of vineyards, according to which in 4-7 years they will
not need anymore to buy grapes.
77
Producers and Exporters of Wine and the Union of Oenologists.60 Cooperation within the
Gild of Winemakers is more intensive, where members are cooperating with MIEPO and
other organizations on export promotions, participation to exhibitions etc.
166.
The insurance system in the Republic of Moldova is developing, but the
agricultural enterprises do not hurry to take advantage of insurance services for
agriculture. The small amount of insurance premiums for agricultures reveals the
underdeveloped nature of this market segment (annex 17 / table 2). Farmers lack money,
information or do not believe in repayment of insured amounts. The Government subsidizing
of the insurance of productions risks in agriculture, starting with 2005, raised the interest of
farmers for this service, confirmed by almost a 16 fold increase in the amount of insurance
premiums in 2006 as compared to 2005. A wine company related that it has already taken
advantage insuring its vineyards.61
167.
The wine export crisis from Russia has generated the necessity of consolidation
the efforts of the Government and of the winemakers community as for intensifying
the actions of promoting wines on external markets. Increase of shares on the actual
markets and penetration of new markets, accompanied by wines quality and
competitiveness increase should be established as major objectives in the promotion policies
implemented by the Government and the winemaking business. In the actual situation, the
Government follows to assume the role of leader in uniting the efforts of all the participants
to the winemaking industry. The success of Moldovan wines, which plunged into
international competition, will be determined by the production of wines in the New
World62 style, cooperation with participants to the respective markets and promotion of an
intelligent branding campaign. Overcoming personal interests, consolidation of efforts and
efficiency of the activity of wine business associations might constitute a success of intrasector cooperation and a significant support to the promotion process. A good example in
this sense could be the opening of Wine Houses on external markets, in which the whole
range of local quality and brand wines would be present. Businesses should understand that
the emphases need to be changed from the concept of traditional production of wine to the
concept of winemaking business. The business with elite wines is considered an attractive
domain for investments, with an annual return of 10%-12%, in which the prices do not fall,
but, vice versa, go up. The only thing, which might lead to the decrease of elite wines
prices, could be the global recession.
168.
Although successfully undertaken, the efforts of MIEPO and AAMV do not
constitute a sufficient contribution of the Government for promoting the image of the
country and of wines on external markets. A few enterprises interviewed supported the
idea, that the Government does not undertake sufficient efforts to promote the image of the
country abroad. There were situations, when the leaders of the local market were asked But
who are you? or Moldova, or otherwise Maldives (islands)? MIEPO has limited
resources63 for organizing a bigger number of external events. The events like Moldova
presents, Wine Festivals, presentations within embassies and forums and other events
organized by MIEPO with the contribution of donors (embassies, sponsors, AAMV), are
60
At present, the members consider the activity of these unions absolutely inefficient, because of the priority of personal
interests of the company as a detriment of the common interests of all members and external image of the state.
61
For 2007 the Government subsidized 80% of the insurance premium for agricultural cultures
62
The New World group consists of Australia, USA (California), Chile and South Africa. The production style of the
New World is described in the Report on competitiveness evaluation in the economy of Moldova, USAID, BIZPRODAI, April 2004 and refers to quality and style.
63
The 2007 budget of MIEPO is of approximately Lei 3 million and is financed from the state budget.
78
insufficient for the promotion of the image and for successful penetration of external
markets. Mini-studies performed by TACIS experts for MIEPO, as well as direct contacting
of buyers has opened the access to certain markets. The buyers (wholesalers and big
retailers) visit Moldova on MIEPO and other private companies invitations. They have
solicited visits to a range of enterprises, which produce the demanded types of bottled wines.
However, the actual efforts of attracting foreign buyers are insignificant and sporadic. The
enterprises are skeptic as for the contribution of the Government in reorienting exports on
external markets, and are basing only on their capacities. In this situation, the business will
be bound to increase the budgets for advertising.
169.
During the interview, MIEPO mentioned the insufficient activism of winemaking
enterprises in modernizing the knowledge on marketing, management, production and
storage technologies, as well as of establishing new relationships within the process of
exports promotion. In this sense, more active are only the members of the Winemakers
Guild, who have achieved certain events with the assistance of MIEPO. The impression is
being created, that many other winemaking enterprises are expecting to return on the Russian
market at previous conditions. They do not plan any internal strategic improvements in order
to be more competitive and closer to the market. Considering the last events aiming to
cancelling the interdiction, returning on the Russian market would be possible only with high
quality wines, of which quality will be strictly examined by both countries.
170.
National64 and international exhibitions with sales are recognized by
winemakers as very important, because they contribute to promoting wines on local
and external markets, to finding out the new preferences of consumers, as well as the
establishment of partnerships. Often, within these exhibitions, tastings are organized, with
awards attributed to the best wines. Quality and branded
wines of local producers are often awarded at these Box 11. After participation to one
competitions. In certain cases local enterprises take part of the last international
individually at events, in other cases their products are exhibitions, a local winemaking
company has convinced in the
exposed by importers-partners. Participation to specialized impact of barrels from a special
winemaking exhibitions, forums, seminars leads to type of oak over the wine quality.
accumulation of new knowledge as for technologies and So, the company will make efforts
production and storage equipment (box 11), innovations in to import the oak (the local oak is
these segments, more performing auxiliary materials etc. not the same) and to produce by
itself the necessary quantity of
Enterprises take part in these events on the bases of barrels.
invitations received from external partners, from MIEPO or
obtained individually. Still, it is necessary to mention that the existence in the past of the
guaranteed sales markets of the East has finalized in the participation to a wider range of
exhibitions in this territory, compared to the sporadic participations in the territories
from the West. But the situation has entered into a changing process after the crises in
Russia, and producers more often participate in Western exhibitions, which have a bigger
image in the winemakers world. For the time being, the results of participations to
western events are not completely the expected ones in terms of sales. But the winemakers
do not lose their optimism, because they see the real possibility to compete successfully with
other producers on the low-medium price segment.
Concluding Remarks
64
Annually in Moldova are organized such events like Wine Festival, specialized exhibitions like Food & Drinks etc.
79
171. Diversification of export markets, getting closer to consumer needs and improving the
competitiveness might lead to sustainable development of the wine sector. Orientation to high
value markets and acceptance into large markets chains, producing of wine according to
consumers sophisticated preferences and its efficient promotion even on traditional markets are
immense challenges and in the same time opportunities of local winemakers. Moldovan wines
might become more competitive within the tough competition on external markets, if the offered
quality would be the best in the target price segment. Additional investments are needed for
assuring high quality of grapes and modernization of production and storing processes and
equipment, which would decrease production costs and increase the quality of wines. The effect
of these strategic actions may be stimulated and multiplied trough liquidation of identified major
constraints.
172. The most important constraints within the wine sector are of human capital, financial
capital, market infrastructure, innovations and competitiveness, and business climate. The
Government could figure out a major part of constraints identified with different costs and
terms. Thus, the most expensive would be the following activities: (a) strengthening institutional
capacities of the NCVQAP or even of some more labs throughout Moldova (short term), (b)
adjustment of standards to EU/other states requirements (short/medium term), and (c)
modernization/actualization of technological instructions system (short/medium term). Other
constraints the Government would be dealing with do not need significant resources and should
be liquidated trough specific decisions and sector policy reformulations. Diminishing the
inflation which would lead to decrease of the borrowed capital, represents a major concern of the
Government, NBM and IMF. Other constraints could be figured out by the private business
efforts.
173. Sustainable development of the wine sector can contribute to rural poverty reduction.
Enterprises will continue purchasing grapes from companies and population in the next 5-7 years.
In the meantime, selection of suppliers will take place depending on supplied quality and
demanded price, and which would determine a more efficient co-operation with them. This
process will be stimulated by the tendency of planting own vineyards by the wine enterprises.
The revenues from sales of grapes are one of the fewest sources of existence for almost 60% of
rural population. The most probably is that a part of population could not sell grapes anymore if
they do not cooperate in order to increase quality and optimize costs. In the meantime,
development of enterprises would lead to new jobs both unqualified (processing of vineyards and
qualified (wine factories). The demand could be covered by the ex-grapes suppliers labor force.
80
2.3. TRANSPORTATION
Summary of Findings
174. Transportation sector established itself shortly as an important sector for the
Moldovas economy with an increased competitiveness at the regional level. Based on the
competitive diamond analysis of the transportation sector, we highlighted its current situation,
as well as its evolution according to a set of indicators, and compared it to the similar sectors
from neighboring countries. Also, we looked into the main constrains that impede the
development of the sector in short and medium term. At the same time, the geographical position
of the country together with economic and political factors contributed mainly to the
development of such transportation sub-sectors as road and railway modes, the other such as air
and water (both by river and sea) having an insignificant contribution to the movement of freight
and passengers.
175. Based on the constrains analysis, we established that for the transportation sector the
main constrains are those of road and railways infrastructure, as well as business climate
and regional economic and political environment. The list of most important constrains are:
a.
b.
c.
d.
e.
f.
g.
Lack of a modern road and railways infrastructure, which leads to the increased
costs of transportation and at the same time, raises the risks for the transit;
Weak correlation between the development of the road and railways infrastructure
with the market demand and strategy for the development of the transportation sector;
The problems associated with the political solution of the Transnistrian conflict,
which refrain investments in the development of the pan-European corridor IX, which
passes via the eastern part of the Republic of Moldova;
Slow path of renovation of auto fleet and lack of investments in the railways freight
stock, which leads to the aging of the existing fleet and loss of access to the developed
markets of EU, where the environmental standards are constantly tightened;
Lack of national strategy for the development of the transportation sectors with clear
indication of the priorities;
Weak harmonization process of the national legislation to the European norms and
practices in the area of transportation;
Existence of the technical and logistical barriers for rapid border passing, especially
for the perishable agricultural products.
176. Identified constrains which refrain the development of the transportation sector, may
be divided in two groups: of internal and external nature. The first one includes critical
transportation sector via neighboring countries and their need to transit Moldovas
government in its endeavors to adjust to the European standards. The role of government seems
to the main one in the negotiations with the other countries concerning the parity issue for the
transit permits for the road transportation, as well as in the development of the pan-European
highways that pass via the territory of the Republic of Moldova.
81
Structure,
Strategy and
Rivalry
Factor
Conditions
Lack of the high speed
highways on the national
importance;
Weak correlation
between the
development of the road
and railways
infrastructure with the
market demand and
strategy for the
development of the
transportation sector
Development of the
European transport
corridor IX for the transit
goods and 4 major
European highways
passing through Moldova
Qualified but insufficient
labor force, taking into
account the increasing
demand for the transport
services, especially for the
passengers transportation
Aging fleet and
insufficient level of
investments for its renewal
Lack of specialized road
transportation, such as that
of refrigerators for the
transportation of
agricultural products
Increased competitiveness both

on internal and external markets
for road transportation.
Dominant position of the single
state operator in the railways
transportation
Tariff regulations for the
passengers transportation
Lack of fiscal incentives for the
development of the transportation
sector
Non-harmonized legislation with
the EU norms in the transportation
area.
Technical and logistical barriers
for the border crossing procedures
Related and
Supporting
Institutions
Auxiliary and supporting
services for the road and air
transportation but lack of such
for the railway stock
Emerging development stage
of the financial sector, including
financial leasing
Emerging state of insurance
sector
Dependence of other sectors
of the national economy on the
transportation sector.
Demand
Conditions
Increased volume of trade
both on internal market and
cross-border one.
Increased amount of goods
transported in transit
New EU environmental
and security standards
Regional development
programs
Demographic factors for
the passengers transportation
Development of the
economic sectors dependent
on the transport services
Strong non-governmental
sector and associations in the
transport sector.
82
FACTOR CONDITIONS
177. Geographical position of the Republic of Moldova may be seen as a positive factor for
the development of the transportation sector, especially that of road and railways transport,
due to the transit routes that pass via the territory of Moldova, ensuring a considerable
percentage of the West-East trade flows. To that end contribute also the human and cultural
aspects of Moldova, which following the historical background created close cultural and
linguistic links with its neighbors Romania and Ukraine, CIS countries, as well as countries of
Central and South-Eastern Europe. Based on these factors, a big portion of the transporters from
Western Europe, prefer to contract local companies to transit goods to the CIS countries, relying
on their experience and knowledge of the regulations on the CIS market.
As important geographic factor is the passage via the territory of Moldova of the pan-European
corridor IX, which starts in Scandinavia countries (Finland) and ends in South-Eastern Europe
(Bulgaria and Greece) ensuring the circulation of goods between the Northern and Southern
Europe. In addition, four highways of international importance E58 (Austria Russia), E577
(Poland Romania), E581 (Romania Ukraine), and E583 (Roman Jitomir) are passing though
the territory of Moldova. Recent study conducted by the Goldman Sachs, forecasts a substantial
growth of the demand in Russia65 thus creating strategic opportunities for the development of the
transportation sector in Moldova as a potential center for logistics for the trade flows between
West and East. Also, taking advantage of the EU neighboring country, Republic of Moldova may
attract substantial investments in the transportation sector and logistics, offering a qualified and
relatively cheap labor force, combined with the sustainable and good infrastructure.
178. One of the factors of major constrain toward the goal of Moldova to become a transit
point is the unsolved Transnistrian conflict, which creates uncertainties and logistical
difficulties for the transport services on the pan-European corridor IX. This has led to the
diminishing investments from both sides Moldova and Ukraine in the road infrastructure on this
route. The same problem created enormous difficulties and increased costs and uncertainties in
the development of the railway transportation, especially after recent separation of the railway
administration from the left bank of the Nistru from the Moldovan Railways Authority. Finding a
solution in this case would boost significantly the ground transportation in Moldova.
179. The importance of the ground transportation comes from the geographical situation of
Moldova, which favored the development of the road and railway transportation on one
side and created limits for the development of the transportation by sea and river. The
constrains analysis highlighted the lack of necessary density of the roads and railways in
Moldova, which restrains the development of these sectors. The Republic of Moldova is under
the regional average on both of these indicators (Figure 2 and 3). The road network still meets the
demand because of the relatively low level of economic activity and current demand, taking into
account, also, the reduced density of cars per thousands inhabitants, comparing to the other
countries of the region. As for the density of the railways per 1000 sq. km of the territory,
Republic of Moldova is at the level of new members of the EU and South-Eastern Counties, but
well under the level of Central European countries and those from Western Europe.
65
Global Economics Paper No: 99, Dreaming with BRICs: The path to 2050
83
Figure 2: Road density (km per 1000 sq. km

of territory)
Figure 3: Density of the railways (km per 1000

sq. km of territory)
140
120
100
80
60
40
20
0
Moldova
Romania
Cehia
Polonia
Ungaria
Source: www. pmrpublications.com
CZ
SK
PL
SLO BG
MD
LT
EST
Source: IRU and NBS
180. Lack of necessary funds for the investments in the infrastructure for ground
transportation and its maintenance had led to the considerable deterioration of its quality,
as it is indicated in the World Bank report, presented in the Constrains Analysis. Also, this
situation conducted to the slow down of the rates of construction of new roads (Figure 4). This
fact considerably reduces from the competitiveness of the national economy in general and that
of ground transportation sector in particular. In this context, we may exhibit the priorities
established by the EU in respect to the investments in the transportation sector and its necessary
infrastructure oriented mainly towards improvements of the roads and railways networks (Figure
5). An increased attention is given to the development of the transportation and distribution
logistics value chain at the European level, especially to that one in proximity to the urban centers
with a well developed communications infrastructure, combined with the relatively cheaper labor
force and improved utilities services.
Figure 4: Lengh of the new road build during a
year (km)
Figure 5: EU-12 structural funds (2007-2013)

Sea, 2%
20
Airports,
1%
Other , 4%
Urban
transport,
10%
15
10
5
Railways,
30%
Roads,
53%
1998 1999 2000 2001 2002 2003 2004 2005
Sourse: ERF Road Statistics 2007

Source: NBS
181. Lack of own financial resources oriented towards the development of the ground
transportation, led during the last 15 years to the situation when 90% of the roads network
is considered to be in a very poor condition66 comparing to Romania, where 2/3 of the roads
network needs renovation. In this context we may mention the great disparity in which Republic
of Moldova finds itself concerning the access to the necessary funds to overcome this situation.
66
Constraints Analysis, p.34, Figure 30
84
With its own resources, it can only partially maintain its road network, which is the situation
during the last several years (Figure 6), but these funds do not cover the annual needs even for the
maintenance, leading thus to a further degradation of its road infrastructure. The evolution of
expenditures for the maintenance and reconstruction of roads shows a significant reduction in
financial capacity to finance from the special funds such works (Figure 7).
The annual amounts spent for the maintenance of road network in the Republic of Moldova
reaches maximum several tens of millions of US dollars, (based on the budgets for 2004-2007
the total amount is 30 million US dollars). Thus only some of the roads of national importance
are maintained, local ones remaining outside the scope. The hope is for the preferential grants or
loans from such donors as World Bank, EBRD, EU, USA, and others). For example only from
EU structural funds, Romania will benefit during 2007-2013 of the amount of 4 billion euro for
the rehabilitation of its road network, which will allow her to build about 1300 km of new
highways till 201367. In comparison, Republic of Moldova during the last 8 years (1998-2005)
succeeded to build less then 85 km of new roads. On average, in the region, investments in the
infrastructure reach 8-10% of GDP, while in Moldova this indicator is less then 3%.
Figure 6: Distribution of the road funds (20042007)

Reconstructi
on of roads
31%
Figure 7: Evolution of expenditures on roads and

road maintenance during 2004-2007 (mil. lei)
120
100
Reconstruction
of roads
80
60
Road
maintenance
69%
Road
maintenance
40
20
0
2004
2005
2006
2007
Source: Ministry of Transportation and Roads
182. The quality of existing road fleet is very low a large number of transport units of 10
years and older - and can lead to the access limitations of local transportation companies to
the EU markets, as well as diminishing competitiveness of transportation services on
internal market, taking into account the increased preoccupation of EU for the environmental
norms and tighter standards in this area such as Euro 3 and 4, and upcoming Euro 5 for the
emissions of residuals. In Moldova, over a half of
Figure 8: Distribution of road transport per age
the fleet of the trucks is 10 years old or older and groups
together with the trucks with the age in between 5
< 5 years
and 10 years old, accounts for 96% of the entire
4%
5-10 years
fleet of this type (figure 9).
40%
The newer is the auto fleet the less maintenance
cost will be attached to transport services and a
lower gas emissions to the atmosphere will be.
Currently only 60% of the fleet meets the Euro 2
and Euro 3 standards and, subsequently may be
used to render transport services for trans-border
67
>10 years
56%
Source: NBS
www.pmrpublications.com
85
trade. Taking into account that starting with the year 2007 the permits will be given to the fleet
meeting the Euro 3 standards for environmental purposes, this may become a further bottle-neck
in promotion of foreign trade for Moldova.
The number of lorries and especially those in personal ownership has increase substantially over
the last decade (figure 9). Also, noticeable change is coming along the structure of the lorries
according to the type of fuel consumption. As a result of a sharp increase in the fuel prices in the
last couple of years, transport companies are oriented towards cheaper types of fuels such as
diesel and gas. Thus the share of lorries on bensin has decreased from 85.7% in 1995 to 72.6% in
2005, while the share of those on diesel and gas increased to 26% and 1.3% accordingly.
183. The number of lorries has increased considerably during the last nine years and
especially those for freight. In comparison with the railway transportation sub-sector, where
there is only one state operator Moldovas Railways (Table 2), in the road transportation
sub-sector there is a large number of private companies operating, which ensured a more dynamic
development of this mode of transportation.
Figure 9: Fleet of lorries and freight stock
Figure 10: Fleet of locomotives and passengers

stock
30000
25000
500
20000
400
15000
300
10000
200
5000
100
0
1998 1999 2000 2001 2002 2003 2004 2005
Lorries
Buses
0
1998
1999
Freight Stock
Source: NBS
2000
2001
2002
Disel locomotives
2003
2004
2005
Passengers stock
Source: NBS
The dependence from the budgetary resources has led to the limited capacity of the railway
transportation sub-sector to quickly adapt to the market demand and as a result, during the last
several years we observe a reduction in the total number of the freight stock. Even this situation is
within the overall trend observed across Europe, in terms of diminishing share of the railway sector
in the total transportation services, a great deal in
Figure 11: Evolution of productivity in
reduction of the volume of goods transported by
transportation
this mode is the political one difficulties of
90000
0.6
regulating the railways which pass via the
80000
0.5
eastern part of Moldova, as well as logistical
70000
problems which appear from time to time with
60000
0.4
50000
the Ukraine railway authorities concerning the
0.3
40000
transit of goods on some routes or with Russian
30000
0.2
Federation concerning the parity on the
20000
0.1
passengers transportation.
10000
184. Although the share of the employees in
the transport sector increased from 4.7%
in 1998 to 5.4% in 2005, this indicator
remains lower then in the South-Eastern
0
1999
2000
2001
Productia Bruta (mil.lei)
2002
2003
2004
2005
Rata de crestere a productivitatii (%)
Source: NBS
86
Europe, average being 6%, and lower then in the Central European countries. Compared to
the national labor market, this indicator exhibited a very positive dynamic during the last 4 years,
with a great potential for growth. Currently, transport sector employs the largest number of
workforce among the services sectors, being comparable even to the number of employees from
the industry in general. An important factor is the increase in labor productivity in the transport
sector, which exhibited diminishing returns till 2004, the trend starting to reverse in 2005.
However, this indicator is far from reaching the level of 1989, which is characteristic not only for
Moldova but to most countries of the region.
The difference among them is the fact that
Macedonia reached in 2001 a 79% of the
1989 level for the rail transport, while
Moldova for this indicator stood at only
23% in the same year. However, such
comparison with 1989 level may not be
entirely correct, taking into account the
completely different economic conditions
then, and the transportation sector of
Moldova served a closed market of much
larger scale, that exceeded multiple times
current demand.
The quality of labour force is below expectations,

expecially in the passengers transportation. For example,
the taxi operators from the Chisinau municipality cannot
find taxi drivers even with lower qualifications and are
forced to hire teenagers without experience.
Economic realities have changed, currently being much
more complex, thus raising the standards for the
transport companies, taking into account more
sophisticated logistics of border-passing procedures. In
the situation when vocational schools do not meet the
current requirements, these skills take effort and time
from the companies to train their employees.
185. Infrastructure for the air transportation is very limited and entirely depends on the
Governments investments capabilities. Currently regular flights and international ones are
served by only one airport International Chisinau Airport. There are four more airports in
Balti, Cahul, Tiraspol and Marculesti. That in Tiraspol is outside of governmental control of
Moldovan authorities due to the unresolved conflict. Airports in Cahul and Marculesti are in the
process of certification and only that from Balti is operational but is used only for charter flights.
STRUCTURE, STRATEGY AND RIVALRY
186. Major share in the transportation sector have the road and railway sub-sectors, the
first with the dominant position in the passenger transportation and the second in the
freight transportation (Figure 12 and 13). The share of the maritime/fluvial transports and that
of air transport is insignificant one both in passenger and freight transportation. Following the
geographical position of the Republic of Moldova, the maritime transportation does not play an
important role for the national economy and there is almost no official statistics on this mode of
transportation. This may change with the launching of the Giurgiulesti oil terminal, where
Moldova has a narrow strip along the Danube river. The port is designed for both freight and
passengers transportation. However, taking into account that it became operational at the end of
last year only as oil terminal and for the passenger transportation there are no facilities as of now,
the share of the maritime mode of transportation will continue to be almost insignificant in the
short-run in terms of volume of transported freight and passengers, as well as in the total volume
of trade in transportation services.
87
Figure 12: Total transported goods, tons (2006)
Figure 13: Passenger transportation, thou. pers

(2006)
1%
0.4%
4.2%
24%
75%
Rail
Road
95.4%
Rail
Water and Air
Road
Water and Air
Source: NBS
Source: NBS
If there is some similarity in the distribution of passenger transportations by various modes of

transportation in Moldova with 95.4% and EU with 92% (Figure 14), then for the freight
transportation in terms of weight, in Moldova the largest share has the railway mode of
transportation, while in EU it has only 10%, and most of the goods are transported by road transport
(47%) and maritime transport (40%), (Figure 15). In this respect, the distribution of freight
transportation by various modes in Moldova resembles that of Bulgaria and Romania, where the
railway sub-sector is the dominant one as well. As for the countries of South-Eastern Europe, we
observe the diminishing role of the railway sector and increased share of the road transport.
Figure14: Passenger transportation in EU-25, (2004)
Figure 15: Freight transportation, EU 25 (2005)

Maritime
40%
Road
92%
Railw ay
7%
Maritime
1%
Source: ERF Road Statistics 2007
Fluvial
3%
Railw ay
10%
Road
47%
Source: ERF Road Statistics 2007
In general, we can speak of a disadvantage for the Republic of Moldova concerning the lack of
the maritime mode of transportation in the structure of the transport sector, which is one of the
cheapest mode of transportation and respectively could reduce the costs for freight movement.
187. The development of the transportation sector is based mainly on private sector, which
holds the majority share in the overall volume of transported goods. This fact creates the
premises for a competitive environment in the transportation sector and diminishing of the
administrative intervention. However, we notice a major differentiation in the structure of the
ownership in various transportation modes. Most of the services rendered by the road sector come
from the private operators, which are in great numbers without someone holding the significant
market share (Figure 16 and 17).
88
Figure 16: Road freight transportation (2005)

Mixt w ith
foreing
capital
8%
Mixt public
and
private
19%
Public
17%
Figure 17: Road passenger transportation (2005)
Mixt w ith
foreign
capital
11%
Mixt public
and
private
0%
Private
56%
Source: IRU
Public
7%
Private
82%
Source: IRU
In the area of railway transportation the situation is reverse single operator on the market
Moldovas Railways, which is a state enterprise. With all the disturbances in its operations due to
political and tense international relations, the state enterprise Moldovas Railways registered in
the first half of the 2007 a 14% growth in the volume of transported goods comparing to the similar
period of the last year, and registered a profit of USD 82 million. The head of the enterprise, Mr.
Miron Gagauz declared that the increase in the wages of the employees of the company was 31.1%
comparing to the same period of last year and surpassed the 2200 MLD threshold, which is about
USD 185 per month.
As a strategic priority for the development of the transportation sector was the securing of the
transportation independence for the country in the railway sector and its integration into the
European system. In this context the construction of the railway Revaca-Cainari was accomplished,
as well as a new one Giurgiulesti Cahul was started.
In the road freight transportation few foreign investments were attracted, some of which being an
established joint-ventures or foreign companies. However, the share of the foreign investments in
the transportation sector remains a very low one, comparing to the countries of the region, where a
liberalization of the sector took place several years ago. As a comparison, in the Republic of
Moldova the volume of foreign direct investments (FDIs) in the sector is about 5.5%, while in
Macedonia 46%.
188. In the area of passengers transportation, the current level of the services is below any
standards both in urban, inter-city and international transportation. This is caused by the
multiple causes, among which the most important are:
a. many small operators with the few number of minibuses and as a result not capable to ensure
their own financial capacity for fleet renewal;
b. high level of pollution due to the old fleet of buses
c. non-compliance of many transport units to the standards for passengers transportation
d. bad road infrastructure in most of the towns and villages which increases the risks of
accidents
e. high level of unauthorized passengers transportation
Among the most important problems of the passengers transportation the operators mentioned the
following:
a. very slow renovation and deployment of new fixed assets (fleet of buses);
89
b. long period for administrative resolutions

concerning the deployment of the new
buses based on leasing contracts;
c. discrepancies in the tariff policies for the
national and international transportation of
passengers
d. weak governmental measures to prevent
unauthorized passengers transportation
e. lack of incentives that should be granted to
the operators for procurement of transport
units
in
conformity
with
new
environmental standards Euro 1, 2 and 3.
Figure 18: Air passenger tranportation (2006)
Turkish
Airlines
14%
Tarom
2%
Austrian
Airlines
5%
Tandem
4%
Moldavian
Airlines
17%
Club Air
5%
Other
2%
Air Moldova
51%
189. In air transport currently operate 14

Source: State Civil Aviation Administration
companies, one of which is a state company
Air Moldova whose share in the passengers transportation in 2006 was 52.1%68. Three
out of these 14 companies (Air Moldova, Moldavian Airlines and Tandem Aero) hare regular
flights from Chisinau Airport; another four have flights based on parity agreements Turkish
Airlines, Austrian Airlines, Taron, and Club Air. The other two companies State company
International Marculesti Airport and Joint Stock Company Nobil Air have charter flights.
The number of transported passengers has shown in the last several years a stable growth. Thus in
2006, the growth rate was 13.8% and in absolute number reached 548.3 thousand passengers
double from the level o 10 years ago. However, the volume of transported freight remained at the
level of 2005 1700 tons. A seasonal increase in the number of passengers is observed during the
summer period, which is the trend during the last three years. Despite this, the air transportation
does not represent a significant share either in passengers or freight transportation.
To several operators (8 companies) that were specialized in the cargo transportation and
registered in the Republic of Moldova their licenses were withdrawn in 2007 due to the
irregularities in their activity. In the air roster of the Republic of Moldova there are 19269
registered airplanes, of which 47.4% have the certificate of flight. 80% of the fleet consists of the
airplanes produced in the USSR, most of which do not correspond to the EU and International
Civil Aviation Organization (ICAO) standards. This fact considerably limits the competitiveness
of the national operators on the air services market both regionally and internationally. The
limited character of the air transportation in Moldova, does not allow the development of the own
flight schools for training of new crews, which currently have aging personnel. With the aim to
overcome this issue, the State Administration of Civil Aviation recognizes the training centers
from abroad that meet the criteria and JAR-FCL1 and JAR-147 standards on a nondiscriminatory basis.
Based on bilateral agreements, the sharing of the passengers transportation between the national
and foreign companies, which have regular flight schedule to and from the Republic of Moldova,
is done on a 75% and 25% basis accordingly.
Further development of the air transportation will depend on the general increase in the standards
of living of the population, as well as its capacity to pay for more expensive mode of
transportation but at the same time a more fast one.
68
69
State Administration for Civil Aviation: Report on activities for 2006

Strategy for the development of civil aviation for the period 2007-2016
90
190. In the last 8 years, the transportation sector (mainly the road transportation) became a
bridge between West and East, ensuring the transport logistics for the freight movement
from the countries of European Union (27), Turkey and countries of South-Eastern Europe
to CIS countries (Figure 19 and 20). Starting with 2007, following the accession to EU of
Romania and Bulgaria and change in the border-crossing procedures, transport units from the
Moldovan companies started to encounter difficulties in operating on European market that may
lead to the reverse of the positive trend in the trade in services registered in Moldova during the
last decade.
Figure 19: origine of the feight (auto)
Figure 20: destination of the freight (auto)
2005
2005
2004
2004
0%
20%
CIS
Source: IRU
40%
EU 27
60%
80%
100%
0%
20%
CIS
Turkey and SEE
40%
EU 27
60%
80%
100%
Turkey and SEE
Source: IRU
The new, more restricted procedures to obtain a visa to the EU countries, especially in the newly
acceded one, including Romania, added to this problem. Taking into account the way in which
transportation sector of Moldova has developed during the last years, it is important to determine
the priorities for this sector in general and its strategy for the development in the regional context.
191. A special role of the governmental bodies is the insurance of the non-discriminatory
access of the operators in the transportation sector of Moldova to foreign markets, as well
as a favorable business climate within the Moldovan market. Currently, due to the disparity in
the transit needs based on the parity agreements,
there is a great demand and lack of such permits Already a large portion of the auto fleet
for local operators based on such agreements. In registered in Moldova, about three
particular this is the case for the transportation to thousand, moved together with their
Hungary, Ukraine, Poland and Russia. With such companies to Romania, Portugalia,
conditions of market access Moldovan companies Russia and other countries to avoid
risk to loose their competitiveness gained on the restrictive system of permits and have
market access to EU and CIS countries.
regional market in the last several years.
Concerning the technological innovations in the transport services, OECD survey, reveling some
of those innovations being implemented in the countries of South-Eastern Europe, such as new
trucks with electronic combustion systems, new information technology and trucking systems,
but almost none of them being reported for Moldova. From the interviews and discussions with
the operators in both cargo and passengers transportation sectors in Moldova, it has been
mentioned that often changes and ambiguous government policy, refrains private investments and
discourages innovations in the sector.
91
Another constrain that may explain the low FDI and innovation in the sector is the lack of
institutionally independent regulator in the sector, with the exception of Albania and Bulgaria,
where such agencies have been established as independent legal entity. In Moldova, the Ministry
of Transport acts as a regulator. Opposite to the most of the countries in the region, Moldova and
Albania regulate the transport tariffs.
One positive aspect of the regulatory framework of the Moldovan transport sector is the lack of
discrimination between the national and foreign companies, where Moldova is an exception to
the countries of the region that apply such discrimination. Mostly this became possible upon
Moldovas accession to the World Trade Organization in 2001. As a result, Moldova eliminated
restrictions on market access both for commercial presence and cross-border supply of transport
services (Annex 4, Table 1).
DEMAND CODITIONS
192. The increase in the living standards and purchasing power of the population
substantially boosted external trade, especially imports of goods (Figure 23), which
subsequently increased the demand for the volume and quality of transport services.
International trade plays a critical role in the development of the transport services in Moldova.
Thus, based on the total turnover of goods (Figure 21) we notice that most of it is due to the
cross-border supply. On the internal market most of the goods are transported by local transport
companies (Figure 22), based on the total volume of transported goods (mil. tones).
Figure 21: Turnover of goods, mil tons-km (2005)
Figure 22: Volume of transported goods, mil tons,

(2005)
International
transport
6%
National
transport
31%
International
transport
69%
Source : NBS
National
transport
94%
Source: NBS
In the last 10 years the export of the transport services increased by 2.7 times (in line with the
overall export of services by almost 2.9 times), while the import of transport services increased by
1.8 times, significantly lower then the overall import of services by 2.5 times. This permitted to
keep the share of transport services in the overall export of services at a stable level of about 48%
average during the last ten years, while the level of imports of the transport services in the overall
imports of services decreased from the level of 48% in 1997 to about 35% in 2006. The trade
balance in transport services after the financial crisis of 1997-1998 turned into the positive one and
remained positive during the last 7 years (Figure 24), increasing both in relative terms (7 times
from 2% of the trade in transport services to 14%), and absolute terms from $3 to $53 millions
during the same period.
92
Figure 24: Evolution of the trade in transport services
Figure 23: Evolution of foreign trade in goods
250
3,000
2,500
2,000
1,500
1,000
500
0
60%
50%
40%
30%
20%
10%
0%
200
150
100
50
export
Source: NBS
import
19
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
05
20
06
06
05
20
04
20
03
20
02
20
01
20
00
20
99
20
98
19
19
19
97
export
import
% of total trade in services
Source: NBM
193. Another demand factor is the quality of the transportation services, which will be
adjusting to the structure of the transported goods, based on import-export flows, as well as
the issues of security and comfort in the case of passengers transportation. The new
requirements to the transportation logistics (packing, loading, and movement of goods) are put
forward by the final consumers of transportation services. In the Republic of Moldova, where
major share pertains to the production and
Figure 25: Main types of goods transported by railway
export of agro-industrial goods, their
transportation and especially of fresh fruits
foodstuff
and vegetables, requires a specialized fleet of
cement and and fodder
lime
10%
lorries with refrigerators. Currently, those
12%
mineral
1950 refrigerators that are operating on the
metalic
solid fuels
products
internal market, account for only 2.5% from
43%
1%
the total number of lorries, which is way
under the actual demand. Although, at
iron ores
present, there is no such narrow
20%
oil products
14%
specialization
among
transportation
companies, depending on the types of goods,
with an increased demand this may well
Source: NBS
happen in the near future and represent a
development strategy for some companies.
Taking into account the share of the agro-industrial sector in the national economy, the role of
transportation sector becomes more relevant one to ensure a minimum access of multiple small
producers to the local and international markets, as well as to the storages and processing plants
for agricultural products. Similarly, the importance of the transportation for the agricultural sector
will be in ensuring its supply with various factors of production such as fuel, fertilizers, as well as
necessary machinery.
To the same extent, the services of the railway transportation companies may be specialized by
the types of goods they are transporting (Figure 25), by using various types of specialized freight
stock.
Increased competition among the passengers transportation companies and tighter standards for
the quality of their fleet and services rendered, will lead to the replacement of existing fleet of
93
relatively old buses and trolleybuses, with orientation to a more large buses, which will replace
the current fleet of vans which are used in the urban transportation routes.
Introduction of new environmental standards by European Union (Euro 4 and Euro 5) for the
road transportation sector, as well as standards implemented by the Joint European Aerospace
Agency (JAA) and those of ICAO in the field of certification and maintenance of airplanes will
require major investments both from private and governmental operators, in order to meet the
new requirements of European market.
Currently, in the air transportation sector there are positive changes followed by the participation
of the Republic of Moldova in the EU program Single European Sky, concerning the air traffic
management systems, reduction of operational costs and harmonization of safety standards. A big
portion of these objectives Republic of Moldova has already met by its participation in the
program ATM 2000+.
194. Increase in the trade flows between the EU and emerging CIS markets and Asia will
guarantee a higher circulation of goods which will pass as transit via the territory of the
Republic of Moldova. The transportation sector may take advantage of this situation and adopt a
strategy to become a logistic node in between West and East, at least in the road transportation,
following the latest trend in transportation services rendered by Moldovan operators, whose
successful strategy in this respect placed them competitively on the regional market. However,
the promotion of such strategy assumes a high degree of cooperation between various
stakeholders, both private and governmental in order to overcome increased competitiveness
between countries in this respect.
During the 90s the transit via Moldova decreased considerably (Figure 26) due to the difficulties
in border-crossing procedure, caused by lack of their harmonization among CIS countries on one
side and with those of Central and Eastern European countries on the other side. In addition, lack
of coordination between various governmental institutions such as veterinary and phyto-sanitary
services, customs and tax authorities added to the problem. On top of them were the political
considerations following the Transnistrian conflict, which adds uncertainty of transit via the
territory not controlled by the official authorities of Moldova.
However, following several measures undertaken within the regional CIS Coordination
Committee and Governmental decisions, starting with 2001 the number of transit units increased,
although in relative terms remains under the level of 1996 of 4.6 percent of the total border
crossing transport (Figure 27).
Figure 26: Total number of lorries in transit
Figure 27: % of transit from the total number of

road transport which enters Moldova
3500
140000
120000
100000
80000
60000
40000
20000
0
3000
2500
2000
1500
1000
500
3.0%
2.0%
1.0%
0.0%
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
04
03
02
01
00
99
4.0%
05
20
20
20
20
20
20
98
97
Source: NBS
19
19
19
19
96
5.0%
Source: NBS
94
The improvement in the legal framework and border-crossing logistics (based on Moldovas
participation in the trade and border-crossing facilitation project in the South-Eastern Europe), as
well as in the customs procedures, together with the improvements in the road and railways
infrastructure will lead to the increased role of the transport sector in the transit of goods via
Moldovan territory.
If currently, the existing infrastructure is capable to ensure the necessary minimum for the transit
and logistics of goods on the European highways which are passing through Moldova, then in
the near future, this may not be sufficient taking into account the forecasted increase of about 2.5
times in the volume of traded goods.
RELATED AND SUPPORTING INSTITUTIONS
195. The non-governmental sector plays an important role in the development of the
transportation sector, promoting its interests. Starting with 1994, an Association of
Transporters has been established in order to promote the interests of the transport operators on
the Moldovan market. It has been very active over this period and participated at the elaboration
of the reform strategy for the sector, which included the following:
a. National Strategy for the development of the freight and passengers transportation
b. Review of the licensing requirement for the new entrants on the transportation market
according to the EU standards;
c. Elaboration of the methodology for establishing the tariffs for the passengers transportation
d. Harmonization of the national legislation regulating the transport sector with EU norms;
e. Elaboration of the technical regulations and standards for the passengers transportation and
safety norms;
f. Elaboration of the requirements to the personnel employed in the transportation services.
At the meeting with the meeting with the
representatives and leadership of the The leadership of the Association sees the priority
Association of Transporters, several number one - rehabilitation of the road network
issues have been raised, which are of and building of the new highways, based on the
most interest for transport companies fact that majority of regional development
from Moldova. Thus, it was mentioned programs depend on the access to this critical
the very poor conditions of the road infrastructure.
infrastructure and lack of financial According to some estimations carried by the
resources for that purpose, which leads experts of the Association, about 2 billion lei
to further deterioration of its quality. (about 165 mil. US dollars) are the additional
According to their opinion, the minimal expenditures of transporters for the reparations of
amount necessary for the maintenance of their fleet due to the bad road infrastructure.
the road network will need about 18-20
mil US dollars. Currently these expenditures do not meet even half of this amount on annual
basis. To reach the acceptable standards, according to the experts of the Association about 50 mil
US dollars are needed annually for the maintenance of roads plus another 150 million USD per
year for their rehabilitation.
In the air transport sub-sector, as well, an Association of Companies has been created, which
promoted their interests in the Republic of Moldova. In 2006, the companies, members of this
Association, had a turnover of about 1.2 billion MDL, (about 100 million USD). According to the
95
data of this Association, the situation in the air transport sub-sector is difficult. In 2007, after the
restrictions have been imposed on 8 companies, 160 airplanes remained registered in Moldova,
and 260 pilots have been exposed to the uncertainty for their future jobs. Most of these airplanes
rendered their cargo services in Africa and Asia. The costs to prepare a single pilot are about 50
thousand USD, and it may reach 14 million USD in the case of highly qualified pilot with
experience of flying on many types of airplanes. At the same time, the interruption in the flight
period should not exceed 6 months.
196. The service industry for the transportation sector developed with increased rates in the
last several years. Many companies, small and large, appeared on the market, some of them
specializing in a narrower niche. Increased competitiveness exists for general services and less
one for more specialized services for the heavier and bigger transport units (such as lorries and
buses), where larger investments are necessary in order to establish a diagnostic center. Such
centers are mostly located in the large urban areas, namely Chisinau and Balti, with few
exceptions in some district centers, which increases the costs for services for the transportation
companies located outside these areas. Increased level of living along with better infrastructure
(roads, sewage, water, and other utilities) will create favorable conditions for the extension of
such services in other towns of the Republic of Moldova.
In the railway transportation of Moldova, there are no specialized companies in technical services
for diagnosis and reparation of locomotives and freight stock. Therefore, Moldova uses such
services from neighboring countries.
In the air transport sub-sector, all the service companies and auxiliary ones for maintenance and
flight guidance are located in Chisinau. There is only one state company for air traffic guidance,
which is situated in Chisinau MoldATSA. Also, there are 3 service companies and 3 technical
services and one training center. In the process of integration into the European traffic control,
MoldATSA, renders an increasing number of services for over-flight. Their number in the last 6
years has increased six-fold.
Also, with the governmental support another aspect of civil aviation is maintained agriculture
related air service. For that purpose a state enterprise Moldaeroservice has been created.
Unfortunately, these services are not requested within the territory of Moldova because of high
costs, and the company renders its services mainly in Romania, and sometimes to other countries
(ex: Irak). Taking into account the future of agriculture development in Moldova, this situation
may change in the coming years.
197. Insurance sector plays an important part in the development of the transportation
sector. Although, currently it has a limited penetration level of the economy but its recent
dynamic evolution shows a changing
Figure 28: Insurance premiums (million MDL)
trend for the coming years. The
transportation sector remains to the be main
600
sector for the insurance companies, which
500
responds to the demand of transportation
400
companies. From the very beginning the
300
portfolio of all the insurance companies of
200
Moldova was composed of transportation
100
related risks either related to the
0
2003
2004
2005
2006
2007 (6 luni)
transportation vehicles, cargo or passengers
movement. Together with the avia risks, the
auto (pasangers and cargo) air other
share of the transportation sectors in the
Source: ISSA
general portfolio has increased from 63% in
96
2003 to 76% in 2006. Thus we notice an

increasing impact of the insurance on the Figure 29: Share of expenditures in insurance
development of transportation business. sector
However, the insurance sector remains at
an emerging state of development, most of
Moldova
the insurance companies having a very low
capitalization to offer the necessary
protection and to meet the current demand.
EU
Subsequently, due to the very small
volumes of premiums, reinsurance of risks
0%
20%
40%
60%
80%
100%
is more costly for the local companies,
especially that they have the habit of
Costs Profit Insurance payments
contracting reinsurance on bilateral level
without using the local brokerage
companies, which could consolidate the risks and obtain lower prices for the reinsurance
contracts. In addition, the market is very fragmented, currently being 33 insurance companies on
the market of about 45 million USD, most of which have their own capital less then 1 mil. USD.
The situation started to change after new legislation has been adopted last year with new
prudential norm and increased capitalization requirements. Many companies started to look for a
foreign partner or being part of acquisitions and/or merger processes.
As a result, higher costs, due, also, to the lack of large scale effect and inefficient administration,
are passed on to the clients, in this case transportation companies. From the Figure 29 we can
observe that the share of costs in the activity of the insurance companies in the Republic of
Moldova is much higher then that of the insurance companies in EU, which leads to higher costs
to the beneficiaries of such services in Moldova. With the expansion of areas of activities and
introduction of new types of insurance, especially in the financial area, boosted the development
of leasing, which, in turn, contributed to the more dynamic development of the road
transportation, since the companies started to use this easier access to the financial resource to
renew their fleet of cars and lorries.
198. Financial leasing boosted the development of the transportation sector. Most of the
portfolio of the leasing companies consists of road transportation vehicles. However, most of
the portfolio is composed of the cars for personal use (76%), and lorries and tracks used for cargo
transportation have a much smaller share of 12%. This is due to the limited financial capacities of
transportation companies, which cannot afford to buy new vehicles. At the same time, the leasing
operations have doubles the volume of subscribed premiums for financial risks from 2 mil to 4.5
mil lei during the last year. In general, though,
Figure 30: distribution of the portfolio of
the leasing market in Moldova is only at its
leasing
companies
starting point with a very small capacity in
order to have a considerable impact on the
imobile
altele
5%
development of transportation sector. Partially
echipament
0%
7%
these limitations come from leasing companies
autocamioane
themselves, which do not have enough own
12%
capital and use borrowed capital from local
banks, which, in turn, are offering at a higher
interest rate. This leads to the higher interest
autovehicule
76%
payments to the leasing companies and reduces
the demand, which, otherwise would be higher.
The leasing market is far from having the same
Source: survey
97
penetration of the economy as in EU or Central European countries.

199. On the efficiency of operation of transportation sector depend not only the activity of
various branches of national economy, but a range of social aspects, transport ensuring the
mobility of the work force. The transportation sector is part of the value chain in many sectors
of the economy, ensuring the supply of the production factors, movement of the labor force and
delivery of the goods to the consumers. The transportation sector ensures the functioning of the
most municipal and governmental institutions by serving passengers in the urban areas. At the
same time, the transportation sector has a major impact on the environment, especially the road
and air transportation, whose emissions contribute to the global warming effect. In this respect,
starting with 1990, EU started the implementation of the new standards for environmental
protection for the road transportation by introducing once in three years new standards from Euro
0 in 1990, Euro 1 and 2 in 2000, Euro 3 and 4 in 2005, and in 2008 Euro 5. In this respect,
Republic of Moldova tries to stay in line with this trend, however with some delay, implementing
Euro 3 only starting with 2007.
CONCLUDING REMARKS
200. Transportation sector plays a very important role for the national economy, however,
due to identified constrains, its development is refrained, as a result offering an inferior
logistics and increased transportation costs for the goods moved within and/or out of
Moldova. Currently only road and railway modes of transportation may offer large scale
operations in Moldova and be competitive at the regional level. Therefore, clear establishment of
the priorities for the revival and development of the transportation sub-sectors is extremely
important provided limited financial recourses.
Taking into account the geographical area of the Republic of Moldova, probably there is no
other feasible alternative to the road transportation, fact which has been confirmed by the
evolution of the transportation sector in Moldova in the recent years. In most of the
European countries, 85% of the freight (in terms of weight) is moved by road transport and is
carried within the 150 km distance. Up to 500 km of distance, 97% of the entire freight weight is
transported by the road transport. It is proved that at such distances there is no alternatives in
terms of efficiency and costs. 90% (in value terms) and 80% (in terms of weight) of freight is
transported on roads worldwide.
Identified constrains, which refrain the development of the transportation sector, may be
divided in two groups: of internal and external nature. The first one includes critical
transportation sector via neighboring countries and their need to transit Moldovas
government in its endeavors to adjust to the European standards.
Once the critical constrains in the transportation sector are passed over, especially those of the
road network, this will lead to the major economic effects with positive long-term results at the
general economic level. In favor of this argument, speaks the statistics or average economic rates
of return on World Bank projects, where rehabilitation of roads infrastructure has a significantly
higher rate then the one for the other sectors (Figure 31).
98
Figure 31: Average economic rate of return on WB infrastructure projects (%)

35
30
25
20
15
10
5
0
w ater pipes
railw ays
average per WB
telecom
ports
roads
Source: World Bank, 2000/ IRU
99
ANNEX A. LIST OF INTERVIEWEES FOR THE IN-DEPTH SECTOR ANALYSIS

Fruit and Vegetable Sector
1. Tudor Ciobanu, General Director SAURON (large producer of fruits and table grapes,
joint venture).
2. Sergiu Iuncu, General Manager VERDE MONDIAL (greenhouse producer of vegetables,
joint venture).
3. Iurie Flueraru, General Director URS BERGER, (producer of apples and table grapes, cold
store owner).
4. Cornel Timus, General Director RG-AGRO PLUS (medium-size cannery).
5. Tudor Besleaga, President of the Board of Directors ORHEI VIT (large cannery).
6. Anatolii Terzi, Head of R&D Department NATUR BRAVO (large cannery).
7. Dumitru Vicol, General Director MONICOL (medium-size fruit drying enterprise).
8. Alexei Papusoi, Executive Director MOLDOVA FRUCT (Fruit Exporters Association).
9. Multiple discussions and consultations with CNFA staff (USAID Agribusiness Development
Project) including Conrad Fritsch (COP), Dennis Zeedyk (Deputy COP), Viorel Leahu,
Victor Rosca, Valentina Plesca, Nicolae Zaharia (Agribusiness advisors).
10. Valeriu Bulgari, Chairman UNIAGROPROTECT (Union of Agricultural Producers).
11. Vladislav Brad, Local Export Promotion Expert, EU Support to MIEPO Project.
12. Doina Nistor, Chair Women, Business Advisory Center, NGO.
13. Ciobanu Raisa, Food Industry Division - MAFI.
Wine Sector
14. Mihailuta Valeriu, Chief-economist, Cricova S.A., produser of sparkling and high quality
wines;
15. Cojocaru Vasile, General Director, Vinaria Bostavan S.A., Vinria Purcari S.A., large
produser of high quality wines;
16. Jitaru Constantin, General Director, Asconi SRL, large produser of quality wines;
17. Russu Lilia, Executive Director, MIEPO;
18. Netreba Ludmila, Chief of Wine Technology Policies Division, AAMV;
19. Mudrea Iurie, Chief of Analysis, Forecast and Promotion Division, AAMV;
20. Rusanovschi Maria, main specialist, Wine Technology Policies Division, AAMV;
21. Sturza Rodica, Director, CNVCPA;
22. Rusu Alin, Wine Industry Consultant, USAID Project Competitiveness Enhancement and
Enterprise Development;
23. Gheorghita Maria, Textile and Apparel Industry Consultant, USAID Project
Competitiveness Enhancement and Enterprise Development;
100
ANNEX B. SELECTIVE CITATIONS FROM EC FOOD SECURITY PROGRAM REPORT DEVELOPMENT

OF SMALL SCALE IRRIGATION SYSTEM: ANALYSIS OF THE IMPLEMENTATION PROCESS 2006
Background Information on Irrigation Development in Moldova
The development of the irrigation system in the Republic of Moldova has always been and will
always be a priority because of the annual amount of rainfall and droughts that often affect the
territory of the country. In the Soviet times, over 100 large scale irrigation systems were operating
until 1991, ensuring the irrigation of an area of over 310 000 hectares (out of which 110 000
hectares on the left bank of Nistru river). The irrigation systems were conceived and projected for
large irrigation area of collective agricultural farms, exceeding the surface of 1000 irrigable hectares
on average. As a result of the privatisation process and fragmentation of land plots, most large scale
irrigation systems disappeared, as they were not appropriate for operation on small areas.
The irrigation system of the Concern Apele Moldovei was built between 1950 and 1985 and is
composed of 106 pumping networks (branches) of different levels that include 334 pumping stations
that pump water from Nistru and Prut rivers, as well as from the accumulation basins. According to
the data provided by the Concern Apele Moldovei, from the 106 pumping networks, 61 networks did
not operate at all within 2000-2005, or in other words, thus from the total number of 334 pumping
stations only 85 are operational.
EC FSP Program Objectives
Following the request submitted by the Government of Moldova, the Food Security Program of the
European Commission provided a financial support of 2 million Euros within 2005-2006, through
the State Budget, for the development of a small-scale irrigation system in Moldova. The support
provided through the budget was used for: (a) purchase of new irrigation equipment through the
2KR Japanese Project, and (b) development and repair of the water supply irrigation infrastructure
of Apele Moldovei. The objective of FSP program for 2006: Expanding the irrigated area for the
high value crops by 7000 hectares, according to the Action Plan for the Development of Small-scale
Irrigation System of the Ministry of Agriculture and Food Industry for 2005-2006.
Program Results (intermediary)
(1) Using the funds allocated by the European Commission by means of the State Budget for 20052006, IAUPIFP acquired small-scale irrigation systems, meant for sale by instalments to private
farmers from the Republic of Moldova. In 2005, 34 sprinkling irrigation systems were purchased
from grant funds. Of these, 23 units were sold in 2005, 7 units were sold in 2006 and 4 units are still
in stock to be sold in 2007.
In 2006, the unit purchased 60 sprinkling irrigation systems, 30 pumps and 40 drip irrigation
systems from the grant funds. Out of 130 units, 65 were sold that account for 50% of the total
number. As a result, only 1500 hectares of irrigated land were covered out of 3400 hectares of the
irrigated land established as a variable condition for program implementation. According to this
parameter, until October 2006, the Unit failed to fulfil the variable FSP conditions for 2006.
Also it was very difficult to raise funds in the Circulating Fund. So far IAUPIFP had to raise in the
Circulating Fund 2 instalments of 25% each, from the cost of the equipment purchased in 2005 and
25% from the cost of the equipment purchased in 2006. The payback rate of the financial resources
is quite low - 46.8% from the fund to be raised in 2005 and 34% from the fund to be raised for 2006.
(2) According to the data provided by Apele Moldovei, the renovation of 33 stations included in the
program in 2006 will allow for the expansion of irrigated lands by approximately 3500 hectares. The
101
sum allocated from the State budget for 2006 (5 million MDL) was used for renovation of the
pumping stations equipment, renovation of stations themselves, as well as renovation of the
distribution networks. By now, the works had been carried out by over 90%.
As this is a program with variable implementation conditions, the evaluation procedure of the
program conditions fulfilment carried out by the EC will be launched in August 2007.
Conclusions of the Report
Within this study the process of program implementation by the Apele Moldovei Concern was
reviewed, and both the logistical side and the economic efficiency of concern activity were
evaluated, in order to get a clear picture on the current situation and program impact on the Concern
activity. For a better understanding of concern subdivisions activity, a thorough review of the
activity of 4 water pumping stations (which are representative in terms of operations and size) was
carried out. The conclusions of this analysis are presented below:
Access to information is limited because of the outdated data collection and processing system.
The information management system is lacking, and it is spread at different levels within AM.
Pumping stations operate at a very low capacity compared to the projected capacity, ranging at a
level of 2-23%. That is why the administrative expenses have a very high share in the cost of
provided services 45.5% on average for 4 stations.
The equipment in the stations has a high degree of functional and physical depreciation. Big losses
are also caused by the lack of automated systems for starting and stopping the operating process of
the station.
Financial expenditures related to the provision of water pumping are not separated from the nonprofit activities of AM, such as protection against floods, maintenance of protection dams.
The costs analysis has also shown that according to the projected levels, the pumping stations
should operate at a capacity of about 40-50% in order to overcome the break-even-point and
become effective. At the same time, water supply prices of are not differentiated depending on the
pumping level or group, being unique for different levels within the same system.
Recommendations of the Report
Measures to be implemented by Concern Apele Moldovei:
Implement a centralized information management program in short terms;
Separate the activities that do not generate profit from the irrigation system that is a service;
Differentiate the price for water pumping per stations or networks and gradually transfer to the
profit centres system;
Implement a modern accounting system with the integration of subordinated regional enterprises;
Finance efficient pumping stations that meet the demand to a large extent, such as the 85 stations
that currently operate;
Give up the pumping stations where a demand for services is not foreseen for the nearest future or
those that are disintegrated and need large investments;
Review the possibility of passing the inefficient stations to local public authorities or Water User
Associations with a view to saving financial resources allocated from the State Budget;
Select 4-5 efficient pumping stations with high service demand and renovate and re-equip them in
2007 with modern equipment.
102
ANNEX C. CONCLUSIONS OF THE USAID/ADP MARKET STUDY MARKETS FOR FRESH APPLES IN
RUSSIA, LITHUANIA AND GERMANY (JANUARY 2006)
German and Lithuanian importers indicated not to have dealt with Moldovan fresh apples so far.
A few Russian respondents reported that they used to purchase fresh apples from Moldova, but
stopped when the Russian ban on Moldovan fresh produce was introduced (in May 2005). They
reported to have had an overall positive experience with Moldovan apples, and believe that Russian
consumers perceive them quite well. Here are some of their specific observations with regard to
Moldovan apples:
- apples from Moldova are usually in the low price category;
- the produce is marketed through smaller-size wholesalers and it is sold at the open bazaars,
so it does not reach the supermarkets;
- Moldovan apples are often perceived as local Russian produce, and the consumer is usually
confident that the utilized level of chemicals is not high;
- the price charged by Moldovan partners is sometimes regarded as too high for the quality
offered.
Importers recommendations to Moldovan exporters of fresh apples wishing to enter the respective
markets had somehow a different focus, being seen from different perspectives. For example, the
Russian importers, representing the only surveyed group actually familiar with Moldovan apples,
put a great emphasis on the need to improve the quality and handling processes for fresh apples in
Moldova, including produce sorting, grading and packing. The Lithuanian and German respondents,
on the other hand, pointed out that price competitiveness would be the major market access key for
Moldovan apples, not giving up produce quality, of course.
On the Lithuanian market, this actually means competing with Polish supplies, which have
important comparative advantages in terms of market proximity and no-tariff trade regime (since
both Lithuania and Poland are EU members). So this appears as a tough task for Moldovan exporters
provided that the tariffs to EU are high for third countries (in the range of 6-13% depending on the
time period and estimated price), and the distance is much longer (as compared to Poland).
The German importers stressed that the EU market for fresh apples is a very difficult one at the
moment, with highly competitive supplies coming from overseas (New Zealand, South America and
South Africa), this creating serious problems for local (German) and other EU producers. One or
two German importers showed quite pessimistic (or realistic?!), suggesting that the market is full
and there is no chance to enter it at the moment. The main message, however, conveyed by most
German respondents was the following: If Moldova can supply fresh apples of similar quality and
better (lower!) price than other Northern Hemisphere countries, than it has got a comparative
advantage that should be pursued!
The full list of recommendations collected from the three target groups is provided in the Table
below.
103
Table. Recommendations to Moldovan exporters of fresh apples by target market
Germany
Lithuania
Russia
Ensure high quality fruit, have all

the
necessary
certifications
(including EUREPGAP), dispose of
large volumes and deliver constant
supplies;
Ensure that your produce satisfies

all European standards and phytosanitary requirements;
Focus on the produce quality,

which should satisfy the European
quality standards;
Improve post-harvest operations:

sorting, grading, packaging (use
Euro pallets);
Resolve the issue of black spots

(Moldovan apples get black spots
quickly!, which is a sign of
calcium deficiency);
EU is a very difficult market facing

strong competition from overseas
(which causes problems to local
producers), and now with the
accession of new members, such as
Poland
and
Hungary,
the
competition will get tougher.
This is a very difficult year, do not
recommend to anyone to export to
Germany because the market is full!
There are high costs to get on the
German market for fresh apples! Be
careful!
Come to Germany, find out the
market requirements for the
produce, see the retail shops, and, if
you are lucky, get a trial supply.
Find your comparative advantage!
This should be the price if you
can supply similar quality and better
price
than
other
Northern
Hemisphere countries, than youve
got it!
Offer a competitive price for a

high quality produce thats the
main requirement for entering the
market.
In order to compete on the market
Moldova
should
have
a
comparative
advantage
over
Poland, which is not easy.
Problem 1: large distance so the
transportation costs are high;
Problem 2: since Lithuania is now
member of EU, the custom tariffs
on imports from third countries are
high, so your apples become pure
gold until they get here.
Varieties that you can offer is also
an important factor.
Choose you partners carefully,
concentrate on large chains (either
wholesale or retail).
Improve harvesting operations, so

that the produce keeps an
attractive appearance for longer
periods of time;
Purchase modern equipment for
improving
the
post-harvest
operations, such as sorting,
grading, waxing, packing;
Improve the produce packaging:
use European standard packaging;
Keep the price corresponding to
the produce quality;
Reach the level of Poland, or
otherwise Polish apples will soon
substitute the Moldovan ones
(within the last 2-3 years Polish
apples made a great jump forward
and moved from the low price
category into the medium to high
one.).
Although it is clear that each market has its own specific requirements and regulations, the main and
immediate task of Moldovan apple producers resumes to improving quality and post-harvest
handling, so that the produce satisfies the high demands of the high-end target markets. While
produce quality is an absolutely necessary element, it is not a sufficient one though. Finding the
comparative advantage of Moldovan fresh apples on each of the target markets is the next challenge.
As suggested by our respondents, the focus should be put on obtaining a price advantage over the
competitors. Various strategies should be employed to achieve this, including exploiting the
relatively low labor costs (still prevalent in Moldova), rich soils, as well as plantation of highyielding apple varieties that perform well in Moldova, under the condition that they are demanded
on the target markets.
104
ANNEX 4. CONDITIONS FOR TRADE IN SEE TRANSPORT SECTOR

Table 1: Conditions for trade in the road transport sector in SEE
Market access
Commercial presence
restrictions on any entrant
Cross-border supply
restrictions on foreign entrant

Regulations
Existing regulator
Transport tariff regulation
Average time for authorization
Discrimination of foreign firms
Prohibition of cabotage
Restrictions on passangers and
freight
Albania
Bulgaria
Croatia
Macedonia
Moldova
restrictions
no restrictions
bilateral road
freight
agreements
bilateral road
freight
agreements
bilateral road
freight
agreements
no restrictions
no restrictions
Independent
Agency
urban
transport
10-30 days
Independent
Agency
Independent
Agency
Independent
Agency
Ministry of
Transportation
no regulation
21 days
no regulation
30 days
no regulation
30 days
public transport
3 days
prohibition
prohibition
prohibition
prohibition
no prohibition
n/a
restrictions
restrictions
restrictions
no restrictions
Table2: Conditions for trade in the rail transport sector in SEE

Albania
Bulgaria
Croatia
Macedonia
Moldova
Market access
Commercial presence
restrictions on any entrant
Restrictions on foreign entrant

Cross-border supply
restrictions on foreign entrant
State
monopoly
no restrictions
no estrictions
State
monopoly
State
monopoly
no restrictions
no restrictions
State monopoly
Except
passengers and
freight
Except
passengers and
freight
bilateral freight
agreements
bilateral freight
agreements
multilateral
agreements
no restrictions
no restrictions
State
monopoly
For new
entrants and
existing maint.
State
monopoly
State monopoly
For pass. &

freight transp.
Ownership
Private & foreign ownership

Regulations
Existing regulator
Passenger tariff regulation
Freight tariff regulation
Infrastructure and transport
organization
Ministry of
Transport
Government
control
Some price
control
Single
operator
Independent
Agency
Approval
needed
No regulation
Separate firms
n/a
Approval
needed
Approval
needed
2 separate
units, 1 firm
Ministry of
Transportation
Approval
needed
State finances
Approval
needed
Free
agreement
No regulation
n/a
Single operator
105

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GOVERNMENT OF REPUBLIC OF MOLDOVA

MCA MOLDOVA TEAM

SECTOR ANALYSIS REPORT

CHISINAU, JULY 2007

FINAL DRAFT, August 15, 2007

ACRONYMS AND ABBREVIATIONS 3

FINAL DRAFT, August 15, 2007

ACRONYMS AND ABBREVIATIONS

- Agro-industrial Agency Moldova-Vin

FINAL DRAFT, August 15, 2007

FINAL DRAFT, August 15, 2007

FINAL DRAFT, August 15, 2007

FINAL DRAFT, August 15, 2007

fruits and vegetables, both fresh and processed;

FRUIT & VEGETABLES

Poverty reduction efforts in rural area and small towns will be

FINAL DRAFT, August 15, 2007

(intensive orchards and vineyards, greenhouses, new high-yielding varieties), irrigation

FINAL DRAFT, August 15, 2007

FINAL DRAFT, August 15, 2007

Figure 1. Competitive Diamond Analysis for the three sectors

FRUIT & VEGETABLES

Fresh sector: vegetable

World markets for

Achieving reliable raw

State excessive role,

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Roads quality affects

on the high value

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FINAL DRAFT, August 15, 2007

CHAPTER 1. INITIAL SECTOR ANALYSIS

Real GDP growth, %

FINAL DRAFT, August 15, 2007

FINAL DRAFT, August 15, 2007

Figure 4. Sectors share in employment

percent of total empl

Figure 3. Sectors share in GDP

MDL [nominal terms]

percent of total investments

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Figure 7. Foreign Trade in goods

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1.2.1. AGRICULTURE AND AGRO-PROCESSING

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Figure 11. Productivity growth rates

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FINAL DRAFT, August 15, 2007

the last decade. While being on the rise since 2000

Figure 14. Fixed capital investments

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FINAL DRAFT, August 15, 2007

In 2005 industry employed almost 12% of labor

Industry share in GIP, %

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Industry Development Strategy for the period up to 2015.

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Assessing Competitiveness in Moldovan Economy, USAID-Bizpro, July, 2004.

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Figure 20. Export and Import of non-food

It is important to mention the extremely small share

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South (550 thou