Friday, December 11, 2009

Rebooting Moldovan Agriculture

When discussing agriculture in Moldova, it doesn't take long before the s-word pops up.  It's a word beloved not just by those on the left who you would expect to use it, but also by the supposedly radical extremist parties of the right.

Subsidies.

The problem with subsidies is that they don't work.  They don't build strong enterprises.

Sometimes subsidies end up being a complete racket, such as the loans and grants sloshed around over the last few years to supposedly promote the plantation of vineyards (and, rather stupidly, contribute to the world's growing wine lake...).  Subsidies shield agri-businesses from the realities of international markets, leaving them weak and unprepared for change.  They distort market prices, sending the wrong signals to business about where they should be investing their money.  Ultimately they divert money from social services or from the pockets of taxpayers.

Don't get me wrong; the state does have an important role in agriculture.  That role is to facilitate the development of strong Moldovan agribusinesses which are able to produce and market Moldova's primary produce in an economically and environmentally sustainable manner.

A serious agricultural policy needs to start with an assessment of the underlying problems of the industry:
  1. lack of investment capital
  2. fragmentation of farmland
  3. lack of marketing capability
Policy then needs to address these issues in turn.  Heres some ideas
  1. The state should work with international donors to support financial institutions willing to provide credit against substantive and sensible business plans.  Microfinance principles could come in useful here.
  2. The state should establish a machinery hire company, run on a fully commercial basis, with branches across the country.  Farmers can then hire tractors, harvesters, cement mixers etc rather than having to own them.  In the long term this company should be privatised.
  3. Land consolidation should be encouraged by giving groups of neighbouring peasant farmers a simple facility through which they can transform their small holdings into transactable shares in a collective holding larger parcels of land.
  4. Marketing capability could be strengthened by establishing a state-owned marketing enterprise which would once again operate on as fully commercial a basis as possible.  It would not be a monopoly (farmers would be free to market their produce as they see fit), however it would be available to puchase produce from enterprises too small or too underskilled to undertake their own marketing.
In all of the activities above the state should aim to make an acceptable profit on taxpayer investment.  Otherwise the policies above will just be the s-word in disguise.

Agriculture should not be a street-corner beggar, demanding subsidies from the secondary or tertiary sectors of the economy.  Its rightful place is as the motor of the Moldovan economy, standing on its own two feet.

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