Subsidies’ structure has improved significantly over the past years with over 90 percent directed to investment purposes and increasingly serving the introduction of new technologies. The remaining recurrent subsidies accounting for less than 10% of the subsidy budget are not very expensive but not very effective either, says the World Bank Report “Public Support to Agriculture” that was presented by the WB Office in Moldova in a conference, IPN reports.
One major problem valid for all subsidies is the small inclusion of small and medium farmers in programs. The existing recurrent subsidies exhibit low efficiency and no long-term impact for the sector.
The core public agricultural services are present in Moldova to serve the private sector of farmers, but the effectiveness of most services is questionable due to a series of deep-rooted structural inefficiencies in the existing systems. This is especially the case of key services, such as Research and Education, which are large budget items but offer limited value due to outdated methods and systemic deficiencies.
The publicly operated Hail Prevention Service is a large and growing budget item but the benefits of the system are unclear as there is no scientifically credible evidence worldwide that hail can be suppressed by this technology. The Irrigation Service has low efficiency because public resources are spent on safeguarding a system that is largely non-operational. The problem with the Variety Testing Service lies in its current mandate to test on compulsory basis any new variety before allowing it for sale on the domestic market.
The WB report says three types of government action on current programs could significantly improve direct spending on agriculture: reduce, redesign, or increase funding.
The outdated agricultural services need redesign or further reform. The large agricultural research sector is the first in line to be reformed and modernized. The education system in agriculture also requires upgrading to address the existing mismatch between the qualifications provided and labor market requirements. The Water Service and Seeds Commission also require serious revisions of their roles and management functions in order to better serve the private sector needs.
Government support for agriculture, both via spending and tax relief, amounts to 2 percent of GDP, probably near the limit of what the current fiscal envelope can support. While the efficiency and effectiveness of agricultural subsidies appears to have improved in recent years, this does not seem to be the case with most services supporting agricultural competiveness. There is large scope for rationalizing tax advantages to help address the challenges of agriculture.
