“Wine Is Food, Not Just Alcohol,” Says Moldova. But How Can It Stimulate the Agricultural Sector?

FROM: Zenebe B. Uraguchi – 05. April 2019

A series of events in a span of four years shone a spotlight on Moldova and its biggest export, the wine sector. The first was when Russia, the largest market for Moldovan products, slammed a ban on wine import in September 2013. The stated reason was food safety; however, deep-down the timing of the import ban was a reaction to the closer ties that Moldova established with the European Union.

The second event came in March 2017. The Parliament of Moldova voted approving wine as a food product. While wine is still considered alcoholic product and the intention of this blog is by no means “promotion of alcohol”, [1] the new law allows advertising wine products on TV and in the press and selling in shops after 22:00 at night.

Moldova, a former Soviet republic in south-eastern Europe tucked in between Ukraine and Romania, has the greatest density of vineyards in the world. Wine-making dates to 5,000 years. Employment in most sectors has been on the decline except for agriculture after 2012 and a few trade-related sectors such as sales, tourism and transport. However, with many young people leaving the country and an ageing rural population, how can agricultural products like wine keep the country afloat?  

Two structural problems of the Moldovan economy

The Moldovan economy has been struggling from two main constraints. First, small and medium-sized enterprises have low relative productivity compared to other countries in the region. This’s despite such enterprises represent around 97% of the total number of enterprises and they’re an essential driver of economic growth and job creation. The list of problems is long – from access to markets and knowledge networks to lack of competitiveness due to low value additions, skills shortages, and innovations in product development.

The other problem is the impact of remittances, which leads to predominantly jobless growth. Remittances, a quarter of GDP and among the highest in the world, have enhanced incomes by funding housing construction and an increase in consumption, mostly of imported goods. While high migration has certainly helped reduce poverty – improved wellbeing for migrants and family members left behind – it has also created a vicious cycle of low opportunities at home. Up to 25% of the active labour force is outside the country. Many private sector enterprises struggle to find workers, especially in the agricultural sector which is seen as less attractive to young people. One in three firms regards lack of skills as a major or very severe constraint.

Implications for employment and income

“Without adding values and increasing competitiveness”, says Artak Harutyunyan, Team Leader of the Improving Market Systems project in Moldova, “the agricultural sector won’t be revived.” Wine is one of the few products exported with its full value chain completed in-country. For other agricultural products, one way of doing this is weaving the agricultural sector into the information, communication and technology sector to increase productivity and enhance access to markets.

Applications and software, for example, can be used to gather market information or skilfully promote products. Agriculture and tourism provide the most natural entry points for synergies through agro-tourism. A youth employment initiative in Bosnia and Herzegovina, MarketMakers, is currently facilitating the linkage between food processing and tourism.

Overall, agriculture seems to increasingly become knowledge based. The digital revolution — information and communications technology, artificial intelligence, machine learning — are transforming the sector. Tracking weather patterns, accessing market information, interacting with traders and government agencies, and getting paid for crops are moving to the digital realm. Critical challenges, however, remain including the uncertainty in the role of technologies enhancing or displacing labour, as well as the huge digital divide between regions within a country (rural-urban) and among countries globally.

While visiting Et Cetera, one of family-owned wineries in Moldova at the end of March, the co-owner frustratingly stated that his major problem is finding people to work. He has introduced technologies for picking grapes and spraying his fields. Still he thinks that this isn’t enough. He has been considering bringing workers from Asia (e.g. China) and this proved to be difficult as Moldova doesn’t have clear regulations on hiring workforce from abroad.  

What does the future hold for agriculture?

“Does agriculture have a future?” I posed this question to the President of National Farmers Federation of Moldova. His answer was unwavering: “everyone needs to eat. Plus, what else does Moldova have?” The country is endowed with fertile land and a well-suited topography. However, the value added in the agricultural sector as percent of GDP for the past two decades showed significant changes, with a maximum of 33% in 1995, falling to 15% in 2016.

The Moldovan government had good intentions when declaring wine as a food product in 2017. This seems to be a nice promotion strategy. There’s no doubt that the wine sector is growing and it’s attracting more foreign investment and becoming more competitive on the international market. Making a big difference, however, requires considering other broader issues.

Here are three important disruptive changes that will shape the future of agriculture for employment and income opportunities:  

The service sector offers huge potential  

With rural communities aging and young people migrating to urban areas (and abroad), the role of agriculture in economic stimulation lies in services that mediate the “plot to plate” (from “grape to glass”) process — packaging, transportation, processing, marketing, quality assurance, etc. In other words, there’s a huge off-farm employment and income generation potential within the food system. As a case in point, a report by the European Union shows that “agriculture and food related industries and services provide over 44 million jobs in the EU, including regular work for 20 million people within the agricultural sector itself.”

The service sector has been the largest contributor to economic growth in Moldova. Gross Value Addition (GVA) by services (e.g. financial intermediation, transport and communication, education, healthcare, hospitality related sectors and other services) doubled and now accounts for almost half of the total value created in the economy. Economic growth could accelerate dietary transitions and drive up agricultural demand, which in turn stimulates growth in services to keep up the pace.

Technologies drive smart farming  

Efficiency – both in terms of producing quality food and preserving natural resources – will also require thinking about mechanising with a smaller, more skilled domestic farm workforce. This means that “smart farming” or “precision agriculture”, the use of modern technology to increase the quantity and quality of agricultural products, is becoming an important factor. At the forefront of such knowledge-based agriculture are organic farming and “agroecology”. Organic farming is expanding at an accelerated rate, creating more diversity and quality of products. This is despite reduced yields from organic farming. In addition, agroecology, which combines traditional farming with scientific knowledge and emphasizes the interactions between plants, animals, humans and the environment, is gaining wider support.

Secondary towns become critical in shifting spaces  

Furthermore, with the service sector becoming quite important, agriculture has faced a rapid shift in space – more exchanges and mobilities between rural communities and urban (cities and secondary towns). A recent study by HELVETAS shows that “small and medium-sized towns are important for connecting rural and larger urban areas and have the potential to play a more effective role in inclusive and equitable regional development. Yet the development potential that they offer often goes unnoticed and unplanned.”

Such secondary towns have closer links to economic activities in nearby rural areas, and therefore they will have an important future role in food systems and economic growth (employment and income). In Moldova, agriculture predominates in regional output, and its share in the secondary towns is twice as high as in the economy as a whole. The share of services in the economy of secondary towns in the regions is also almost half that in the economy of the capital.  

Additional sources

 

Cover picture: @gaetanocessati

 

[1]  There is sensitivity when it comes to using funds from development cooperation for “promoting alcohol”. This isn’t the intention here — I’m just using the example of wine to show where and how agriculture needs to evolve in generating more and better (quality) employment and income opportunities.

 

Programme Coordinator, East and Southeast Europe, Senior Advisor, Sustainable & Inclusive Economies