Oilseeds and Cereals Sector Review

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

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

3. Farm Productivity: Problems and Solutions

4. 400 1.6 360 1.5 320 1.4 280 1.3 Output ('000 tonnes) Yields (tonnes/ha) 240 1.2 200 1.1 160 1.0 120 0.9 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 Production Yield Sunflower Production and Yields

5. Cereal Production

6. 3.5 3.0 2.5 2.0 Tonnes per hectare 1.5 1.0 0.5 0.0 1998 1999 2000 2001 2002 2003 2004 Wheat Maize Yields of Major Cereals

7. 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

8. 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

9. Area of Major Arable Crops

10. Gross Margins of Alternative Crops

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

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

13. The Processing Sector

14. 450 400 350 300 250 '000 tonnes 200 150 100 50 0 1995/96 1997/98 1999/00 2001/02 2003/04 Production Net Exports Domestic Crushing Sunseed Output and Net Exports

15. 400 300 '000 tonnes 200 100 0 1998 1999 2000 2001 2002 2003 2004 Wheat Maize Barley Major Cereal Exports

16. Sun Crushing Costs Comparison

17. Crushing Margins ($/tonne seed)

18. 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

19. Government Policy and Trade

20. 260 220 US$ per tonne 180 140 100 1999/00 2000/01 2001/02 2002/03 2003/04 Moldova Export Parity Domestic Sunflower Seed Prices

21. 180 150 120 US$ per tonne 90 60 30 0 2000 2001 2002 2003 2004 Domestic Export Parity Import Parity Domestic Wheat Prices

22. 300 250 200 US$ per tonne 150 100 50 0 2000 2001 2002 2003 2004 Domestic Export Parity Domestic Maize Prices

23. 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

24. Sun Crush Margin in “Free Market”

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

26. 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

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

28. Recommendations

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

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

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

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

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