Oilseeds and Cereals Sector Review Chisinau, Moldova 14 June 2006 David Jackson, LMC International

Structure of Presentation The productivity problem and solutions The processing sector Government policy and trade Recommendations

Farm Productivity: Problems and Solutions

Sunflower Production and Yields /931994/951996/971998/992000/012002/03 Output ('000 tonnes) Yields (tonnes/ha) ProductionYield

Cereal Production

Yields of Major Cereals Tonnes per hectare WheatMaize

Sunflower Productivity Production has increased, but this has been due to area expansion rather than yield increases Area expansion is derived from shortening rotations, not by cultivating new areas Shorter rotations are one important factor contributing to declining yields

Cereal Productivity Cereal productivity has been broadly flat The 2003 wheat harvest was decimated by winter kill from frost and wind Cereal area is less constrained by agronomic rotations than sun

Area of Major Arable Crops

Gross Margins of Alternative Crops

Reasons for Low Yields Shorter rotations (sunflower) Lack of credit Reduced inputs Low technological base Inferior seed quality

Solutions for Low Yields Many of the problems can be traced to credit, such as: Seed quality Input applications Rotational practices (sunflower) Price incentives

The Processing Sector

Sunseed Output and Net Exports /961997/981999/002001/022003/04 '000 tonnes ProductionNet ExportsDomestic Crushing

Major Cereal Exports '000 tonnes WheatMaizeBarley

Sun Crushing Costs Comparison

Crushing Margins ($/tonne seed)

Sun Crushing Issues Margins higher than risk premium Margins similar to Ukraine,where a 17% export tax was applied High margins attract entrants Domestic sector too small for two efficient crushers

Government Policy and Trade

Domestic Sunflower Seed Prices /002000/012001/022002/032003/04 US$ per tonne MoldovaExport Parity

Domestic Wheat Prices US$ per tonne DomesticExport ParityImport Parity

Domestic Maize Prices US$ per tonne DomesticExport Parity

Non-Transparent Trade Barriers Sunflower now less than export parity (17% 2001/2 to 11% 2003/4) Maize less than export parity Wheat did not rise to import parity

Sun Crush Margin in “Free Market”

Sun Non-Transparent Trade Barriers Prior to 2004: Export documentation Customs clearance Rail facilities

Wheat Trade Barriers Domestic market intervention via state bakeries and import licence Fixed milling margins for low value bread State grain reserve Need for clear price stabilisation techniques

Common Non-Transparent Barriers Post 2004: UCE single export channel UCE export fee Export payment system State rail monopoly

Recommendations

Sun - Key Policy Actions Access to credit Access to export markets Transparent pricing Seed quality

Cereals - Key Policy Actions Strategic reserve guidelines Revise bread price controls Market access Market information

Access to Credit Encourage land market Land titling/collateral Encourage crop financing (e.g. export market access) Efficient warehouse receipting

Access to Export Market Remove single export channel Remove rail monopoly Facilitate rail transport Facilitate customs and borders Rationalise documentation

Transparent Prices Published domestic, regional and international prices Mandatory seed pricing formula