Rises in world food prices will affect Moldova too. Economic analysis by Info-Prim Neo

The food tsunami or the rise in the world food prices will probably affect Moldova too, even if the authorities and the producers seem calm, while some say that Moldova will only benefit from the crisis. In reality yet, the prices on the local market rise constantly and will continue to grow. In 2007, for the first time in the past years, the food prices increased at a higher rate (+15.4%) than the inflation (+13.1%) and this tendency persisted in the first quarter of 2008. At an inflation rate of 4.1%, the food products grew dearer by 7.4%, Recently, the National Bank of Moldova said that the rise in inflation in the first quarter of this year stemmed mainly from the increase in the prices of foods products. “The inflation over 12 months (March 2008 compared with March 2007) rose by 15.4%. The food products grew dearer by 22.1%, the non-food products by 10.2%, the services by 10.5%”. The price of beef went up by 40.0%, of pork by 26.0%, of sheep and goat by 40.0%. The statement of the new UN Special Rapporteur on the Right to Food, Olivier de Schutter, who said that "the époque of cheap food products is in the past”, seems relevant to Moldova also. With a non-developing agriculture that depends on the weather conditions, Moldova is very much exposed to these crises. [Why do the prices rise?] The prices of the basic food products such as bread and meat have increased due to the following: * the last year’s severe drought that seriously affected the Moldovan agriculture; * the rise in consumption and, consequently, in demand, despite the higher prices of food products; * the extension of the fields sowed with plants used to produce bio-fuels; * the low productivity in agriculture, two-three times lower than in Europe; * the agricultural potential used in proportion of under 50%. At the same time, the national agroindustrial sector goes through a difficult period of economic organization owing to the tendentious treatment on the part of the state and to the improper methods of reforming the agroindustrial sector used until present, says the expert in agriculture of IDIS “Viitorul”, Viorel Chivriga. Moldova last year experienced the most severe drought in the past 50 years. As a result, the production of cereals, sunflower, sugar beet was much lower. The cereal production in 2006 was 2.29 million tonnes, while in 2007 – only 901,000 tonnes. The wheat output in 2007 was 402,000 tonnes, as against 678,000 tonnes in 2006, the sunflower crop was 156,000 tonnes, in contrast to 380,000 tonnes, while the sugar beet yield was 596,000 tonnes, as opposed to 1.177 million tonnes. The production of vegetables fell over twofold. “Despite the relative shortage of certain products following the severe drought, we do not face a scarcity of food products,” says Alexandru Muravschi, deputy team head at the Support to Rural Small and Medium-Sized Businesses Program. But the prices follow the world tendency. “The demand remained constant or increased, so the prices tend to rise,” the expert in agriculture said. The imports also exert pressure on prices. It is not a surprise that Moldova cannot cover the consumption necessities from internal production. Last year for instance, Moldova imported food products, beverages and tobacco worth US$237.9 million. The exports of such products totaled US$276.0 million. Imports of vegetal products came to US$150.4 million, while exports to US$162.9 million. Though most of the producers and independent experts look at such a situation calmly, a question still arises: why does a country with a significant agricultural potential import food? Because the authorities tackle the food security only when the country is hit by drought and forget about it immediately after a more favorable year. But one aspect is positive. “Moldova’s agriculture benefits from the rise in world food prices because it can sell more and at higher prices,” considers Valeriu Bulgari, president of the Agricultural Producers Union UniAgroProtect. [Who is under the blow?] The rise in prices affects first of all the poor strata of the population as they spent 70-80% of their incomes on food. The expenses for food and non-alcoholic drinks per country in 2006 made up 44.4% of the total expenditure. The townspeople are more affected. “Most of the people in Moldova live in villages and can work a plot of land that feeds them,” says Alexandru Muravschi. But the figures of the National Bureau of Statistics show that the townspeople in 2006 spent 39.6% of the incomes on food, while the villagers, who have much lower salaries that are under the average per economy, spent 48.8%. [Who benefits from the situation?] The agricultural producers could benefit from the rise in prices. “Despite the severe drought, in 2007 we made profit,” a number of agricultural producers said. “It’s time we use the enormous potential of the Moldovan agriculture,” says Valeriu Bulgari, president of the Agricultural Producers Union UniAgroProtect. There are two important problems that we should solve: to increase productivity in the agrarian sector, which is one of the lowest in Europe, and to enhance the competitiveness of the products, especially of animal products. The rising prices could stimulate investments in agriculture. The state should create good conditions to attract these investments and lift certain restrictions, including those on the sale of agricultural land to foreign investors. In the end, Moldova could have a better balance of trade, given that the food and vegetal products make up a considerable part of the exports. [The only in Europe to need immediate food support] Moldova is the only country in Europe that needs immediate food support, according to a recent report prepared by the Food and Agriculture Organization (FAO). “Twenty-one countries from Africa, ten from Asia and five from Latin America entered the list of 37 countries facing food crises, including the Republic of Moldova, the former kitchen garden of the Soviet Union,” the press reported. But the experts and agricultural producers unanimously declare that 2007 was an exception. “Moldova should not be in the list of the countries that face chronic food problems. 2007 was an exception for us and we had to ask for humanitarian aid,” Viorel Chivriga said. Yet, the food security must be treated as a national priority as we should avoid new crises. [The state opens state reserve in order to prevent bread price rises] Recently, the Government decided to allocate 7,000 tonnes of food wheat from the state reserve in order to prevent the rise in food prices. The authorities announced that the bread in some southern districts of Moldova could grow dearer as there was not enough wheat. The Ministry of Agriculture and Food Industry and the Agency for Material Reserves, Public Acquisitions and Humanitarian Aid had to continue monitoring the wheat prices in all the districts so that the state could intervene if need be. “The state wheat reserve enables to insure the food security of the country at present,” the Deputy Prime Minister and Minister of Economy and Trade Igor Dodon said. It becomes more evident that the food-related problems cannot be neglected anymore. The home prices follow the international trends sooner or later. Though not much dependent on food imports, Moldova is yet directly exposed to the phenomenon. The news coming from outside are indeed worrisome. The corn this March got dearer by 31% on last March, the rice by 74%, the soybean by 87%, while the wheat by 130%. A real tsunami of prices is taking shape.