EC4NR AGRICULTURE POLICY NOTE #12 CURRENT STATUS OF AGRICULTURAL REFORMS IN EC4 COUNTRIES May 28, 1997 Natural Resources Management Division Country Department IV O Europe and Central Asia Region _ _ _ _ _ _ _ _ _ _ _ _ _ Uln This updated version of previously published policy reform matrices has been compiled by Csaba Csaki, Mark Lundell and lain Shuker. Editorial assistance was provided by Alan Zuschlag. This update is based on the original reviews completed in October 1995 by Csaba Csaki and Kristian Moeller and July 1996 by Csaba Csaki and Antonio Nucifora. The statistics presented in this update reflect the latest available through the statistical services of the individual countries represented. Despite the best efforts of all concerned, in some cases reliable figures from 1994 onward are unavailable. In these cases, the latest available reliable statistics have been used. 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Overview of the Status of Agricultural Reforms in EC4 Countries in mid-1997 1 = Centrally planned economy -> 5 = Fully completed reforms Country/Area of Reform Price and Market Land Reform Privatization in Rural Financing Institutional Overall Liberalization Agroprocessing and Framework Score Input Supply '96 '97 '96 '97 '96 '97 '96 '97 '96 '97 '96 '97 Estonia 4 5 4 4 4 5 4 4 4 4 4.0 4.4 Latvia 4 4 4 4 4 5 4 4 3 4 3.8 4.2 Lithuania 3 4 4 4 4 5 3 4 3 4 3.4 4.2 Armenia 3 4 4 4 3 3 3 4 3 4 3.2 3.8 Georgia 4 4 3 4 3 4 3 3 2 3 3.0 3.6 Moldova 3 4 2 3 3 4 3 3 2 3 2.6 3.4 Ukraine 4 3 2 3 3 4 3 3 2 2 2.8 3.0 Belarus 2 2 1 1 2 2 2 2 2 2 1.8 1.8 Cross-country average 3.5 3.7 3.0 3.4 3.2 4.0 3.1 3.3 2.6 3.2 3.1 3.5 Key to Numerical Ratings Price and Market Liberalization Land Reform Privatization of Agroprocessing Rural Financial Systems Institutional Framework and Input Supply 1. Direct state control of prices 1. Sovkhoz/Kolkhoz type system 1. Monopolistic state owned 1. Soviet type system, Agrobank 1. Institutions of command and markets. dominates. industries. sole outlet. economy. 2. Deregulation with indicative 2. Legal framework for land 2. Spontaneous privatization and 2. New banking regulations are 2. Modest restructuring of prices, and price controls. privatization and farm mass privatization in design of introduced, government and public institutions. restructuring, yet only recent early implementation stage. implementation. 3. Mainly liberalized markets 3. Advanced stage of land 3. Implementation of privatization 3. Restructuring of existing 3. Partly restructured constrained by the absence of privatization, but large-scale farm programs in progress. banking system, emergence of governmental and local institutions. competition. restructuring is not fully complete. commercial banks. 4. Liberal markets and liberal 4. Most land privatized, but titling 4. Majority of industries 4. Emergence of financial 4. Government structure has been trade policies with not fully is not finished and land market not privatized. institutions serving agriculture. refocused while research, developed domestic markets. fully functioning. extensions, and education is being reorganized. 5. Competitive markets with 5. Farming structure based on 5. Competitive privatized agro- 5, Efficient financial system for 5. Efficient public institutions minimal governmnent intervention. private ownership and active land industries and input supply. agriculture and agro-industries. focused on the needs of private land markets. market agriculture. r t~~~~~~~~~~~~~~~~~~~~~~~S ARMENIA Total Population 3.7 million Food and agriculture in NMP 54% Agricultural output in 1995 as percentage Rural Population 31% * 1994 of 1988 level 85% Food and agriculture in active labor (1994) 28% Livestock production in 1993 as percentage Total ATea 3.0 million ha. Food and agriculture in exports (1993) 7% of 1988 level 64% Agriculture area: 1.4 million ha. in imports (1993) 51% Share of livestock in agriculture (1993) 34% Traditionally net importer: grain, sugar, Agricultural area in private use (1995) 33% Arable land 35% vegetable oil and livestock products. Share of independent private farms in total Orchards 5.5% arable area (1995) 69% Irrigated 22% Share of private sector in total agricultural Forested 11% output (1994) 95% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Market liberalization is advanced, although some delays in full Distortion free marketing and incentive system. Agriculture completion. A. Prices/Subsidies * Agricultural producer and consumer prices were deregulated in * Move as rapidly as possible to fully liberalize prices 1992. and unify markets. * State orders (state tasks) set for grain and some other major * Guarantee that farmers are able to retain profit for products were eliminated in 1995. development. * Subsidization of agriculture has largely been discontinued, however * Phase-out all subsidies to irrigation, and increase water subsidization of irrigation water still exists. charge recovery rates up to 80-90%. * Domestic grain price adjusted to border price. * Discontinue preferential sales of grain and flour to state- owned grain milling and baking enterprises. * Underdeveloped markets and limited demand keep producer prices, except grain, under border prices. * Introduce an adequate 'social safety net' of subsidies targeted to low income and vulnerable consumers. * Profit and marketing margin control in the food processing industry has been removed. * Net Material Product Armenia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Grain and other commodities for state reserves are procured by * Introduction of market tenders to procure products for commercial methods. inter-Governmental barter commitments instead of "state tasks." * Export ban on grain products removed. * Proceed with demonopolization, privatization of * Food exports no longer require licenses. remaining state trading enterprises. * Tariffs reduced to low and fairly uniform rates. * Pursue active trade policy to improve market access for Armenian food and agricultural products, especially in republics of the FSU and Central and Eastern Europe. C. Taxation * 20% VAT (farms are exempt). * Larger private farms should be incorporated into the regular business tax system. * Tax on land sales is 15% of cadastral value and retards development of land market. * Reduce tax on land sales to 5%. * Over-taxation of food processing by a rather complicated system. * Simplify and reduce taxation in agroprocessing and ____________________________ _I_ promote investments in tax incentives. 2 Armenia ISSUE | STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm The most comprehensive land reform in FSU transferring most of Individual private farming is the dominant component Restructuring arable and perennial crop areas to private farmers. of the farming system with secure and transferrable ownership rights. Agriculture was decollectivized in 1991. * Develop and implement a property registration, and * About 20% of arable land is kept in state reserve. information system to provide security of tenure, full information on property transactions, and a basis for real * Reserve land is utilized by leasing and is to be sold to private estate taxation. farmers. * Speed up and complete the privatization of reserve land. * Pastures and meadows remained largely state and municipality owned, with some being sold while most are leased. * Prepare and implement a program to promote the emergence of land markets to support land consolidation * Land sales are allowed; however, market for land and leasing is and the move towards a more efficient holding structure. developing slowly. * Rearrange responsibilities for providing social services * Law creating legal conditions for a land market was adopted in in rural areas and guarantee the continuation of rural December 1995. social services after transfer. * Technical conditions (titles, registration system) for a functional * Establish competitive land mortgage and credit systems. land market are not in place. About 40,000 titles were issued by early 1996. * Create a conducive framework for organizing local and regional service cooperatives. 3 Armenia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive Agroprocessing and Delays in privatizing agroprocessing and services for agriculture. Competitive, privately owned agroprocessing and input Services for Agriculture, supply. * Agroprocessing privatization was not part of the original agricultural reform package of 1991. * Fully implement program of demonopolization, and privatization of the centralized agricultural input supply, * The privatization of agroprocessing and input supply is part of and output marketing. overall privatization program which was accelerated significantly in 1995-1996. * Establish feasible and reasonable quality and safety standards for agricultural imports and exports. * Out of 220 agroprocessing plants, 200 have been privatized. * Acquire technical assistance and training in enterprise * The grain industry is covered by current privatization programs. management. Bakeries are intended to be privatized in 1997. * Promote joint ventures to tap foreign expertise, * Foreign participation in the agroprocessing privatization is modest. technology, capital, and provide access to foreign markets. * Promote research and development of new products and markets. 4. Rural Financing Lack of an appropriate financial system for privatized Viable financial institutions serving the agricultural agriculture. sector efirciently. * Financing in agriculture is not adjusted to the needs of a market * Do not use fiscal means involving financial institutions based privatized agriculture. to sustain the operation of state enterprises critical to food security. * High interest rates and the lack of a registration system restricts the use of land as collateral and seriously limits lending to agriculture. * Promote growth of ACBA and other rural savings and credit societies. * Restructuring of Armgrobank is in process. * Promote the emergence of competitive insurance * Establishment of the Agricultural Cooperative Bank of Armenia services for agriculture. (ACBA) is complete and the rural lending initiated through dollar denominated loans and in local currency. 4 Armenia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED .___________________ ________________________ACTiONS/OUTSTANDING REFORMS NEEDED 5. Institutional Framework Adjustment of institutional structure is slow and constrained by Efficient and effective public sector administration and budgetary difficulties. support for commercial and private agriculture. * New Ministry of Agriculture and Food Industry was created. * Complete the reorganization of public agricultural administration to the needs of a market economy. * Education system has been partially adjusted to emerging new conditions. * Complete the reform of agricultural education and research. * Reorganization of the research system is currently taking place. * Promote the establishment of a system to provide for * Public activities (government research-education) in agriculture are technical assistance for enterprise restructuring. seriously hampered by budgetary difficulties. * Armenian agricultural extension system was created but does not cover the whole country yet. Aericulture related ESW: WB lending proiects * Agriculture and Food Sector Review. (Red Cover) 1995 * Irrigation Development Project FY 1995 Translated into Armenian in 1995. USD $55 million * Armenia Agricultural Policy Update (Informal Report) 1995. * Agricultural Reform Support Project Translated into Armenian in 1996. being prepared for Board presentation in FY98. * Land Reform and Private Farms in Armenia, 1996 Status (EC4NR Policy Note#8), December 1996 5 BELARUS f e,, L lio 10. 3 m ilo Agri r in GDP (1995) 24% Agricultural and forstr u Rua opulton%Agriculture an orestry ini active labor percentage-of 191. ee 2 (I 996) 20 ietc rdutoin19 aspretg TQ1aiAI~~a 20.8 million ha. Food and agricUlture in exprts (1994) of19 evel 7 Agriculture area:94mlinh. i mot 19)~% Saeo ietc narclue19 2 Tradtioallynetexporter of livestock 2% Agricultura area inpiaeue(96 6 Arable land 67% m m Spraducts,re of independent 2private farms i l Orchards 2% agricultura 1% Pastures/meadows 33% Share of private sctor- in total agricultural Fore'sted . 36% output(1996) 40% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Agricultural inarkets are Government controlled to considerable Competitive and functioning agricultural markets Agriculture extent. without Government intervention. A. Prices/Subsidies * Progress in reforming the agribusiness sector has been made at * Place any necessary state procurement on the base of the national level by reducing and removing administrative controls competitive open bidding. over pricing, processing, procurement and distribution. * Continue with liberalization of all prices and eliminate * State procurement of major agricultural products at cost based regional interference from agricultural markets. recommended prices is still in place. * Measures are needed to loosen the hold of the regional * Producer prices have been decoatrolled; however, government administrations and their agriculture departments over intervention in selected agricultural markets remains strong. enterprises in the sector, in order to ensure that the state's laws on price liberalization are respected. * Accomplishments at the national level are still incomplete and are being undermined at the regional or Oblast level by the local * Phase-out producer subsidies. administration. * Eliminate all formal and informal barriers in domestic * Some remaining floor and indicative prices are often enforced by trade. regional authoities as mandatory prices. * Ensure food supply and a minimum safety net for the * Significant subsidization of agriculture (about 7% of GDP in poor. _________________________________ 1996). Belarus ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ______________________ ACTIONS / OUTSTANDING REFORMS NEEDED B. Trade Policies * Export quotas with licensing for many plant products, especially * Refrain from intervening in agricultural import and export grains and rapeseed. markets with the exception of interventions acceptable under the WTO. * Minimum export price for selected food products were introduced beginning 1995. * Eliminate minimum export price requirement. * Customs union with Russia abolished all border controls and * Introduce low and uniform tariffs to all countries and increased import duties to non-CIS countries by 15% points on remove quantitative restrictions on exports. average. * Break up monopolistic trading organization * VAT on exports have been eliminated for exports to non-CIS countries. * Privatize all trading enterprises to eliminate implicit de facto price controls by state owners. * Surrender requirement exists for 50% of export earnings. C. Taxation * Overall tax on wages of approximately 40% is almost the same * Guarantee the consistency of agricultural profit tax with as in other sectors. the rest of businesses like food industry. * Profit tax rate of up to 30% for non-agricultural businesses like * Fair and non-discriminatory system of taxation. food industries. Half reduction of rates for profits of small enterprises with less than 25 employees or less than 10 in trade sector and for profits from exports (all enterprises). * 15% payment from profits to the Centralization Fund of the Ministry of Agriculture. * Land tax of about US$ 0.6 - 3.5/ha is adjusted annually. 7 Belarus ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm Land reform and farm restructuring are still at a very early A farming system based mainly on private ownership of Restructuring stage. land and a working land market for efficient and fair asset transfer. * Restructuring and privatization of large-scale farms moves very slowly (but these farms produce major share of output of selected * Develop a consistent framework for restructuring and products). privatization of large collective and remaining state owned farms. * Most of state farms were transformed into collective agricultural enterprises without changing the mode of operation. * Develop and implement a consistent policy to privatize the land of large farms. * Number of small private farms is minimal and increasing slowly (less than 1% of cultivated land belongs to them). * Support emerging private farming and guarantee fair conditions for those who wish to start individual farming. * Housing and household land, about 15% of Sotal agricultural land, was given for full private ownership. * Allow downsizing of livestock sector. * Private land ownership is maximized at I ha per person, * Create the legal and technical conditions for a functioning however, can freely be traded. market for agricultural land. * Rest of agricultural land remains in state ownership. * Develop mortgage procedures for land, other real estate, and moveable assets. The mortgage law would allow lessees * Government intends to provide long-term lease rights for the to mortgage their leasehold interest. large farms and not for the individual members of these farns, as well as for individual farms. * Adopt a resolution to establish a single registry of land and other real estate. * About one third of large farms are in serious financial condition. * Develop an enabling environment to stimulate increased * Land titling and registration practice required by a functioning off-farm employment in rural areas. land market does not exist, i.e. there are major impediments to the transfer of land. E Safeguard an acceptable level of rural social services during the period of restructuring and privatization of large- I scale farms. 8 Belarus ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 3. Competitive Agro rocessine and Little progress, major privatization program has yet to come. Competitive, privately owned processing, input supply Services for Agriculture and service subsectors. * Nearly all of the enterprises in the agriculture input and food marketing subsectors are still owned and operated by the state- * Implement an overall program of privatization without owned companies or by the local municipality. delay in agroprocessing and input supply. * The privatization of agroprocessing and input supply industries * Demonopolize state corporations (associations) and is progressing slowly. privatize them individually by plant or unit. * Many enterprises have been corporatized and a few also * Open participation in privatization for all investors. privatized. * Adopt anti-monopoly legislation. * The stated objective was to complete the corporatization process in agro-industry by 1996. * Facilitate foreign investment by implementing foreign investment laws. * Under the existing privatization scheme, collective and state farms shall become major shareholders of food processing plants. * Remove all explicit and implicit price controls in concert while assuring a competitive market structure. * State procurement at unprofitable rates still in place for selected commodities. * Minimal foreign participation in the process of privatization. 4. Rural Financing Enisting financial system subsidizes the agricultural sector. Viable financial institutions efficiently serving the agricultural sector. * Both primary agriculture and agroprocessing have serious liquidity crises and rely on Government credit and directed credit * Prepare an action plan to revitalize financial services. from the banking system. * Implement pilot projects to establish village credit unions. * Effective private agricultural banking system is absent. * Restructuring of Agrobank is needed. * Phase-out subsidized credits to agricultural producers. 9 Belarus ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 5. Institutional Framework The role of the government in agriculture has not changed Efficient and effective public sector administration and appreciably since the initiation of the reform. support services. Only minor changes in the Soviet type Government structure * Prepare and implement a program of re-organization of related to agriculture. public administration in agriculture. * Research/education system has not been adjusted to emerging o Simplify the structure of governmental organizations new conditions. corresponding to the reduced role of the public sector responsibilities in agriculture. * Public activities (government research-education) in agriculture are seriously hampered by budgetary difficulties. * Review the agricultural education and research system. * Western type agricultural extension system does not exist. * Support the emergence of private farm advisory services. * Strengthen infrastructure and transportation systems in the rural area. Agriculture related ESW: WB lending projects * Agriculture and Food Sector Review. (Grey Cover) 1994. Translated into Russian * Forestry Project. FY 1994. in 1995. * Review of Agricultural Trade and Trade Policy. (Informal Report) 1995. 10 ESTONIA TotalPopuklation 16 million Agriculture in GDP 1995 8% Decline of overall agriculture production 47% Rural Population 28% Food and agricultiare in active labor (1995) 12.1% 1995/86 Food and agriculture in export (1995) 16% Decline of livestock sector 1995/86 52% Total Area 4.52 million ha. Forestry sbare in exports (1995) 16% Share of livestock (1995) 55% Agriculture area. 1.46 million ha. Food and Agriculture in imports (1995) 14% Share of independent family farms in total 29% Traditionally net exporter of processed cultivated land (1995) Arable land 77.5% foods: eggs, butter, cheese and flax, in Share of small subsidiary plots in total 23% Drained 66% 1995 Estonia became a net importer. cultivated land (1995) Orchards 1.0% Natural Grassland 21.5% Forested 44.7% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Completed price and market liberalization with almost no policy Maintain an open market-oriented agriculture sector. Agriculture distortion. A. Prices/Subsidies * All prices are freely determined. * Continue commitment to liberalized prices and markets. * No government procurement. * Avoid introduction of government intervention. * No government price supports. * No deficiency payment systems. * Currency has been successfully stabilized. * Competitive markets have been created based on minimal barriers to entry. * Budget financed rural credit fund providing credit with subsidized interest rates to agriculture and rural areas is still functioning. Estonia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * No export or import restrictions on agricultural trade. * Remain a completely open economy and become a trading center for the Baltic states. * No tariffs for exports and imports. * Avoid introduction of new protectionist measures. * In compliance with IMF agreement. * Trade agreements with the EU and EFTA countries. C. Taxation * Principle of equality is prevailing in the taxation policy. * Do not create new distortion by introducing favorable taxation to certain groups. * Exemption from income tax for small private farmers. 12 Estonia ISSUE | STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm Land is being restituted but the speed of reformns is curbed by Viable system of Independently operated, privately Restructurinfl financial, technical and legal impediments. owned farms. * Nearly all of the assets of state and collective farms have been * Accelerate land reform via increasing resources and privatized. coordinating activities like cadastre registration and restitution among involved institutions. * Majority of the land is still held in various larger incorporated farms which descend from the former collective and state farms. * Introduce incentives to register land as soon as possible, e.g. tax breaks or other financial incentives. * The private farming structure has been developing towards smaller sized family farms with an average size of 24 ha. * Develop framework for a functioning land market especially by clarifying leasehold rights and obligations, * Actual process of formal transfer of land titles to the newly establishing market based rental rates for leasehold established private farms has been slower than desirable. properties, and facilitating the transactability of leasehold rights. * The lack of security and transferability of leasehold has become a major impediment to the access of financial markets by those farmers * Include state land into this market and resolve the issue that use unregistered lands. of how it will be disposed (either sale or long-term leases). * Large proportion of the necessary farm drainage infrastructure is in poor condition. * Upgrade and increase efficiency of farm drainage infrastructure. * Maximum land rental is set at 20% above the land tax, which t implies an artificial upper boundary at 1.2% of the land value. * Review present restrictions on foreign ownership and allow for more foreign participation. * Remove controls on land rents. 13 Estonia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Comnetitive Agro rocessing and Privatization of agroprocessing has nearly been completed. Internationally competitive agroprocessing and efficient Services for Agriculture. services for agriculture. * Companies are in the process of adapting to the market economy, but need significant levels of investment and are highly indebted. * Remove preferential treatments and open agro-industry to foreign capital investments. * Overcapacities in certain processing industries, e.g. dairy industry. * Foster the establishment of farmers' machine * In some cases, excellent commercial institutions, often with the cooperatives. participation of foreign firms, have emerged. * Facilitate the upgrading of agroprocessing to meet European Union standards in all sectors still lacking behind. 4. Rural Financing Banking system has been largely privatized. Sustainable rural financial services. * Rural financial markets need to be developed further. * Train staff in financial sector to address the banking and financial requirements of the agriculture sector. * Modern banking system is developing. * Train farmers in preparation of business plans and * Rural lending has originated almost entirely from budget financed credit proposals. credit fund at subsidized interest rates. * Support the emergence of private banking structure. * Lending to agriculture and rural sector has been low, but emphasis has been placed on increasing it. * Phase-out interest rate subsidies for rural lending. * Lack of an independent lending tradition based on risk assessment * Develop a rural guarantee fund to give partial guarantee and risk taking by banks. on rural loans on a fee basis. 14 Estonia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 5. Institutional Framework Adjustment of the Institutional framnework is at a fairly advanced Strategic framework for assistance to the rural sector. stage. * Accelerate technological transformation according to * Ministry of Agriculture has mainly regulatory functions. the needs of the private sector. * Development of agricultural extension services will receive public * Set up project related research funding system, and funding from the agricultural loan. demand oriented agricultural education. * Agricultural research and education is constrained by a shortage of * Focus on rural poverty and regional development. funds and lacks market responsiveness. * Improve public and develop private advisory services. * Food Quality Control do not yet meet international requirements except in few sectors. * Establish monitoring and testing capacities for food quality to meet EU standards. Agriculture Related ESW: WB Lending Projects * Agriculture and Forestry Sector Review. (Grey Cover). 1995 Translated into Estonian in 1995. * Haapsalu and Matsalu Bays Environment Project * Agriculture and Forestry Policy Update. February 1997 USD 2m; Project effective (informal report) * Agriculture Project; Effective May 1997 USD 15.3m m:Acsaba\estonia.mlx 15 GEORGIA [Total P tiatiW 5.4 million, d d 3 -Food:andagriculure i DPg(1996) e32% ricultural output in 96 a pretg Rural PopuaIo 44 Food anid agnclt i ctv labor (1993 3% 189 leves128 1"i' 3.8milllUR 25% 0 2=~~~~~~cu 28% Food and agrculture in exports (19) 1% Lvestock production in 19as percentg I~~taLAt~~ 7.0 million ha. ~~in imports (1996 2% of 1987 level % Agric ture area: 3.0 mthill h Trditi o.a y nt e t of w i, S f ,0 hare of livestock in agcultur (1994) 44% processed and' fresh fruits, vegetables and: Agricuiltural. area in private use (1996) 24% Arabie land 26% tea Sha'e of private sector in tot agricultural : Orchards 11 utu(1994) 85% Irrigated ~ 45% orested 40% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ______________________ ~~~~~~ACTIONS / OUTSTANDING REFORMS NEEDED I. Macro-economic Framework for Liberal agricultural markets mainly free of Government Competitive and functioning agriculture markets, without Agriculuire intervention. Government intervention. A. Prices/Subsidies * Producer prices have been liberalized and minimal government * Abstain from direct price interventions. intervention on agricultural markets. * Phase out remaining producer subsidies (water). *Control of energy prices is being gradually readjusted to reach cost recovery levels. * Subsidization of water charges is the last remaining producer subsidy. Georgia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED B. Trade Policies * State order system for agricultural products was abolished in late * Refrain from intervening in agricultural import and export 1995. markets with the exception of interventions acceptable under the WTO. 12% uniform tariff on imports. (Trade with CIS countries is duty-free). 5 % on selected capital goods, raw materials, and * Procede in the process of accession to the WTO. medicines. * Ensure that all state agricultural procurement is executed * Tax on exports was eliminated in late 1994. on a competitive basis. * Liberal export policy with no licensing for most agricultural * Maintain low and uniform tariffs and no quantitative products. restrictions on export. * Most agricultural products are traded on essentially private, * Improve physical and commercial infrastructure for informal markets. export trade rather than introducing special incentive programs. * Illegal rent seeking and bureaucracy seriously constrains domestic markets. * Introduce provisions for bonded warehouses and duty drawbacks to promote exports. C. Taxation * Credit for VAT payment for capital goods established in June * Guarantee the consistency of land tax with the rest of 1995. taxation. * Land tax of about USD $20/ha on average is the major form of * Simplify taxation of agroprocessing and services. taxing agriculture. * Fair and non-discriminatory system of taxation. 17 Georgia ISSUE STATUS OF REFORMS I WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm Progressive, however rather spontaneous, unstructured and Private farming as the major component of the farming Restructuring unfinished land reformn. system with secure transferrable land use rights. The 1992 land privatization program provided 61 % of arable * Complete the initial privatization of land as envisaged by land and 81% land for perennial crops but remained unfinished. the Presidential decree of December 1992. * Law giving ownership rights to the beneficiaries of the 1992 land * Create the technical conditions for a functioning land reform was passed by the parliament in early 1996. market through the establishment of title registries. * Remaining large scale farms still control about 48% of arable * Transfer remaining cultivated state lands to private and perennial crop areas though large part of this land is already producers. leased out to private farmers. * Transfer non-land productive assets from state/collective * The current state of large scale farms is beyond the point when users to private users and operators. they can be usefully restructured. * Develop mortgage procedures for land, other real estate, * Land titling and registration practices required for the and moveable assets. functioning of the land market do not exist, but legal framework is in place. * Adopt a resolution to establish a single registry of land and other real estate. * Law on providing lease rights to state owned agricultural land was enacted in mid 1996. Lease rights obtained, however, are not transferable. * Most energy bills are not paid in rural areas. 18 Georgia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS / OUTSTANDING REFORMS NEEDED 3. Competitive Agroprocessing and Spontaneous and slow privatization program. Competitive, privately owned processing, input supply Services for Agriculture and service subsectors. * The early phase of privatization was rather spontaneous and often inequitable. * Implement the overall program of privatization without delay in agroprocessing and input supply. * Currently agroprocessing and input supply industries are privatized in the framework of the overall privatization program. * Create transparent ownership of privatized agroprocessing firms as quickly as possible. * Out of 457 state owned agro-industrial enterprises, 337 had been corporatized and began to privatize by October 1995. * Demonopolize state corporations (associations) and privatize them individually by plant or unit. * Fifty-one agro-industrial enterprises are remaining in state ownership. * Reduce the number of agroprocessing enterprises remaining in state ownership to the minimum, even in the * Most of agro-industries and also those privatized are operating at short term. low capacity at best, due to energy shortage and the lack of liquidity. * Facilitate the emergence of new and restructured private firms in processing, input supply and services. * Bakeries and mills have been privatized. * Encourage improved product quality and penetration of * Foreign participation in the process of privatization remains low, domestic and foreign markets. but there are growing signs of interest. * Several service enterprises were privatized as of October 1995 but have yet not changed their mode of operation in practice. They have not been demonopolized and no competing organizations have been created in the process of privatization. 19 Georgia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED . ~~~~~~~AC'TIONS I OUTSTANDING REFORMS NiEEDED 4. Rural Financing Existing financial system is at a rudimentary state of Viable financial institutions efficiently serving the development and does not serve the agricultural sector. agricultural sector. * Both primary agriculture and agroprocessing have a serious * Complete bank certification program and maintain liquidity crisis. restrictions on uncertified banks. * A major coordinated effort is underway, supported by the World * Develop a strategy for the financing of agriculture relying Bank, IMF and bilateral donors to strengthen the banking system's on links between the credit and product. infrastructure. * Continue establishment of credit unions. * Major restructuring of Agrobank is needed. * About 15 Rural Credit Unions have been formed. 5. Institutional Framework Institutional structure needed by privatized agriculture is not in Efficient and effective public sector administration and place. support services. * Only minor changes in the Soviet type Government structure * Prepare and implement a program to alter the structure and related to agriculture. Overall re-organization of the government scope of government organization for management of begun in November 1995 did not alter the large bureaucratic agriculture. administrative structure still functioning above the farm level. * Re-orient Government attention toward private * Similarly at the regional level the administrative structure of the agriculture. socialist era has been preserved with little change. * Re-orient Government role from direct intervention to * Research/education system has not been adjusted to emerging establishing the general rules and facilitating conditions for new conditions. the smooth operation of the markets and independent business organizations. * Public activities (government research-education) in agriculture are seriously hampered by budgetary difficulties. * Support the emergence of private farm advisory services. * Western type agricultural extension system does not exist. * Review agricultural education and research system. 20 Georgia Ayriculture related ESW: WB lending projects * Reform in the Food and Agricultural Sector. (Red Cover) 1996. * Agriculture Development Project. Approved by the Board in March 1997. Translation into Georgian in 1996. Project effectiveness expected by June 1997. * Land Reform and Private Farms in Georgia - 1996 - Status (EC4NR Policy Note #6) October 1996. m: \anton tO matrix\georg i2 1. m1 21 Latvia LATVIA Total Populi i2.6 llion Foou and ric r n: GDP (1995) 18.9% Decline f foveraagil 51% Rural Population :311 Food an agricultre in iv lab (19 17. producti 1995 Fodand agriutr nepr 195) 1%Decline of livestc rdcto 88 IQluLAI~~~~ 6.46 mfillioni ha. iimot(99)1%19/9 55.2% Agriculture area.. 2.54 million ha. Traditionally net exporter of livestck Share of livestoc 80% p'rodcts: ets rn1k ndegsAriculture area i rvt ue(95 Arable land 66.9% Share* of independent priate 45 % Pastures & Meadows 31.9%.- ag.: : ricu itural farms in total (1995) Drasnead 36% Share of private sector intotal 85%appr. Forested 000; 3; :00;; 0it00430i:0::;; ;:;agricultural output (1995) ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED I. Macro-economic Framework for Almost fully completed liberalization, mainly due to relatively Distortion free, efficient internationally competitive Agriculture bigh import duties. agricultural sector. A. Prices/Subsidies * Prices are freely determined. * Keep commitment to liberalized prices. * No Government procurement quotas. * Foster the development of price information systems for transparent and timely access to cost changes by all * Minimum guaranteed prices for a small quantity of grain set by the concerned. Government for state reserves close to current market prices. * Do not introduce new credit subsidization or high price * No deficiency payment systems. guarantees. * Direct payment supports (Lat 4.0 million) for high grade breeds * Phase out also all implicit subsidies and avoid new and seeds, and flax in 1996. subsidization of agriculture. * Pressure to introduce EU type protective measures (Draft law on agriculture). Latvia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ._____________________ _ ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Export of agricultural products is deregulated. * Maintain an open economy policy to stay competitive. * Import regime has become more restrictive (Variable tariff on * Rationalize tariffs on low uniform ad valorum levels agricultural import commodities on average 40% ad valorum (import and avoid frequent changes to reduce uncertainty and tariffs for butter and cheese as high as 55%). corruption. * Incompliance with IMF agreement except budget deficit ceiling * Uphold IMF tariff, export restriction and import quota limit. agreements. * Grain import/export requires licence. * Promote emergence of wholesale marketing by private traders by providing facilities, and allow new free entry to * 3 % tax on grain trading transactions except those of primary or exit from the sector. producers. Proceed with demonopolization, corporatization, and * Temporary export subsidies for dairy products in 1995. phased privatization of trading enterprises. * Export taxes on unprocessed logs and animal hides. * Strengthen legal framework to improve binding of transactions. C. Taxation * Tax burden on farmers is relatively low; tax exemptions are being * Reduce differentiation in tax rates to minimize phased out (no property tax on agricultural land, and preference in distortive effects on resource allocation through unequal social security taxes). burden. * Introduce a social security system tailored for the conditions of private farmers. 23 Latvia | ISSUE | STATUS OF REFORMS WORLD BANK PROPOSED ISSUE______________________ I ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform and Farn Committed Government to transferring agriculture into an A farning system based mainly on private ownership Restructuring efflcient and dynamic sector by encouraging the development of a of land and a working land market for efficient and market-based, predominantly privately owned production system, fair asset transfer. but considerable further adjustment is needed. * Accelerate land survey, registration and titling to foster * Significant progress in the privatization of agricultural land. the emergence of a land market. * Land restitution is at an advanced stage. * Establish a consistent land valuation system and information flow and a formal mechanism for land * Newly formed large agricultural joint stock companies are transactions. inherently unstable, because individual shareholders have the right to transform their shares into physical assets any time they like. * Make leasing rights freely tradeable. * About 75,000 private farms have been restituted. * Complete restitution. * Registration/titling is advancing slowly, though intensive TA being * Help organize local and regional farmers' cooperatives. provided. * Rehabilitate and modernize key rural infrastructure, * About 65,000 private properties have been registered in cadastre including access roads, electricity, and water to new registration, but full titling is lagging, and about 43,000 have been private farms. registered in the land book. * Repair and redesign drainage systems to meet needs of * Clear formal mechanism for valuation, buying, and selling of land new farming structure. is missing and prevent the development of fully functioning land markets. * Drainage systems do not meet the needs of smaller privatized farms and require rehabilitation or comprehensive repair and maintenance, also to curb negative environmental impact. 24 Latvia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive Arocessing and Good progress in privatization of agro-industries. Efricient, privately owned agrobusiness firms subject to Services for Agriculture, market forces, and agroprocessing industries with high * Almost the whole large-scale state and collective agroprocessing quality products which can compete in world markets. industry is privatized. * Complete the privatization of agroprocessing industries * Small-scale businesses have started to emerge. including the fully state owned enterprises. * The agro-industries have suffered reduction in capacity utilization * Continue a policy that effectively stimulates competition by 30-50% and lack modem equipment and design. policy. * Development of the quality of both existing and new products * Design and iplement a programme to encourge rural through innovation is limited, SME development * Quality control and measuring systems are inaccurate or not * Support for restructuring and capitalization of working at all, limits export opportunities. enterprises based on their competitive merits. * Development of marketing infrastructure in the food chain stays * Create an environment favorable for foreign behind the needs of the large number of smaller farms and investment. enterprises. * Support development of a commercial network of * Anti-monopoly legislation exists, but not strictly enforced private input and output markets. * Support the introduction of product quality control and inspection systems that meet EU or US standards as soon as possible to gain access to these markets. * Facilitate farmer/processor/consumer market information systems. 25 Latvia ISSUE STATUS OF REFORMS | WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 4. Rural Financing A private banking system is emerging with mixed results, need for Viable financial institutions serving the agricultural strengthen bank supervisioncapacities in the Cantral Bank. and rural sector efficiently. Only limited availability of medium/long-term rural credit to the * Implement generally accepted accounting and external agricultural sector through commercial banks. audit principles. e Credit is available for the agricultural sector, particularly for the * Strengthen prudent banking regulation and supervision. newly emerging private farmers, but lacks knowledge about agricultural loan handling. * Train loan officers in agricultural lending including credit risk assessment and portfolio management. * Assist new private farmers in start-up period with provision of credit, training, and services. 26 Latvia ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 5. Institutional Framework Emerging large number of private farms face insufficient support Efficient and effective public sector administration and services, including extension and research. support for private agriculture. * Government structure has not been adjusted to the needs of * Reorganize the Ministry of Agriculture and regional reformed agriculture agriculture administration according to the needs of a market economy. * Newly created private farms have only little farming and farm management skills; technical assistance is needed to develop * Encourage and strengthen research system to focus on institutional and human capacity to support emerging private applied research, transfer and adaption of foreign entrepreneurs. technology, and the design of cost effective extension activities. * Latvian Agricultural Advisory Service (LAAS) has been established in 1992 which has been receiving substantial TA from * Continue to develop independent effective and far bilateral and multilateral sources. reaching sector farm management and technical advisory services as well as agricultural extension services suitable * Agricultural research and education lacks incentives for to all possible sizes of private farms. coordination and problem orientation, research topics, currricular need to be updated for applicability. * Reorganize and strengthen linkages between research, teaching, and extension to increase effectiveness and efficiency. * Strengthen the capacity for market-oriented policy analysis. Agriculture Related ESW: WB Lending Proiects * Agricultural Sector Review. (Grey Cover). December 1994 * Liepaja Environment Project * Agriculture Policy Update (Informal Report) July 1996. * Agriculture Development Project FY 1996 m:\csaba\Uatvia.mtx 27 LITHUANIA IQta1f~p.u1tinn 3.7 million F ood danda ariculturein GDP 1Agricultralo RurlPplto 32% Food a nd agricuilture in active of 1987-4989 ee 50% labor (1995) 2.% Lvsokproducto n19 spretg IQtaLAtca, ~~6.5 mfillion ha. Food and agriculture in expr (19) 2% of. 1989 level60 Agriculture area 3.290 million ha, in import (19 3)% r o lSt i a tue ( ; Arable land; 000000;90t000000 88% TraditionIally net export of livestock dAgricultural rea i pr )55% Orcha 1%0 fish products, however A net importer of Share of independentprivate Drained an: 80%ig: 0 food:a icu products irecent wgriculural 6utput(1 ) 20.2% Forested 29 years. ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Significant but incomplete liberalization of agricultural markets. Distortion free, efficient and internationally Agriculture competitive agricultural sector. A. Prices/Subsidies * Major reform of price support systems in progress, reducing the * Continue liberalization of prices and discontinue all number of products covered and focussing on higher quality products. government purchase for domestic market regulation purposes * Quotas for products under minimum marginal price program were drastically reduced. * Develop an agricultural policy strategy for shifting agricultural support away from direct subsidy and price * A grant system to improve productivity is becoming the major control to focus on efficiency enhancement. component of the agricultural price support program. * Agricultural budget for agricultural subsidies has been reduced in the last few years. Reduction of aggregate budget for agricultural subsidies reached 16.2% in real terms. Lithuania ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Limited progress in re-orienting the country's agricultural exports * Remove all quantitative (non-tariff) trade restrictions to non-FSU. (including temporary export ban on wheat). * Tariff on agricultural commodities ranging from 10%-30%. * Rationalize tariffs on low uniform levels and avoid frequent changes to reduce uncertainty and corruption. * A temporary export subsidy for beef has been approved in early 1997. * Uphold IMF tariff, export restriction and import quota agreements. * Remaining export bans were converted into export tariffs of not more than 60%. * Improve legal framework supporting trade, especially the domestic and international payment system. * Product markets are constrained, particularly at peak harvest time, due to lack of storage facilities (e.g. perishable goods). * Proceed with corporatization, break-up and phased privatization of current trading enterprises. * Promote emergence of wholesale marketing by private traders by privatizing state facilities. C. Taxation * Until 1997 farmers have not had to pay land ownership tax or * Develop a transparent agricultural taxation without income tax. discrimination. * Fuel excise tax is partially refunded to agriculture producers. * A new tax system for private agriculture will be introduced in 1997. 29 Lithuania ISSUE STATUS OF REFORMS WORLD BANK PROPOSED . ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land ReforM and Farm Government committed to transforming agriculture into an A farming system based mainly on private ownership ResruNctufin2 efficient and dynamic sector by encouraging the development of a of land and a working land market for efficient and market-based, predominantly privately owned production system, fair asset transfer. but the progress to date has been mixed. * Speed up land survey registration and titling service as * Significant progress in the privatization of agricultural land. a priority to developing a fully functional land market. * Restitution began but was suspended in early 1997 to broaden and * Take steps to shorten the registration time for improve the procedure. associations and cooperatives of private farmers by reviewing registration procedures. * The removal of the moratorium on land ownership by local legal entities is being considered. * Establish a framework for consistent land valuation and for the dissemination of land market information. i A draft law to make farmers shares in agricultural companies tradeable under the same conditions as shares in other companies is * Improve the design of the legal and institutional being considered. framework that provides for financially sound mortgage operations. * Special privileges for agricultural companies (i.e. large-scale farms) to lease land for another 5 years expired at the end of 1996. * Formalize clear rights to own and sell land and allow sales of land. * In 1996 there were about 135,000 private farms, holding about 15% of available agricultural land, 400,000 household plots of 2-3 * Improve tradeability of leasing rights by increasing hectares, accounting for almost a third 33% (of which 130,000 plots efforts to ensure land markets function. have been surveyed and 95,000 titles have been issued to private farmers) and 2,300 'bendroves' farms that lease and use another * Promote new roles for western type cooperatives in third; most of the remaining land is under private lease. agriculture. * A significant proportion of arable land was left idle due to lack of * Provide support to the reorganization of agricultural inputs and working capital, uncertainty over property rights, and poor companies ('bendroves'). drainage conditions. * Clear legislation on land registration and transactions are missing and delay the development of fully functioning land markets. 30 Lithuania ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive Agroprocessing and Considerable progress in legal reforms, but lack of enforcement Efficient, privately owned agrobusiness fiirms subject to Services for Agriculture and limited progress in privatization of large-scale agro- market forces, and agroprocessing industries with high industries. quality products which can compete in world markets. * First phase of privatizing agroprocessing is nearly complete. By the * Develop a policy that effectively stimulates competition end of 1997 only 8% of shares will be owned by the state, farmers policy and actively removes monopoly distortions. will own 44% and employees 48%. * Create transparent ownership in agroprocessing * Foreign participation in marketing agroprocessing is minimal. enterprises where primary producers own more than 50% of the shares. * The agro-industries are over-sized and inefficient with outdated technology and equipment. * Foster the start-up of new commercial ventures based upon new agricultural and agroprocessing technology. * The increasing emergence of private entrepreneurs is bringing about an increased level of competition as a result. * Create farmer/processor market information systems. * Development of the quality of both existing and new products * Modify transport, storage, and communications through innovation is severely curtailed, thus reducing export facilities. opportunities. * Expand and upgrade public facilities for output * Bankruptcy laws have been enacted and the special treatment marketing (farmers' markets, etc.). clause which continued to protect agroprocessing industries was phased out in July 1994. * The problem of delayed payments to farmers is still widespread, although laws were enacted in 1994 which require agroprocessing enterprises to pay farmers within 15-30 days. * Development of information system and marketing infrastructure in the food chain is largely behind the needs of the large number of smaller farms and enterprises. 31 Lithuania ISSUE STATUS OF REFORMS WORLD BANK PROPOSED _ ~~~~~~~~~~~~~~~ACTIONS/OUTSTANDING REFORMS NEEDED 4. Rural Financing Creation and development of a sound financial system is under Viable financial Institutions serving the agricultural way, but is greatly interfered and hampered by ad-hoc and rural sector efficiently. Government intervention and a lack of long-term capital and knowledge about loan handling. * Implement generally accepted accounting principles. * Almost complete absence of medium/long-term rural credit to the * Strengthen prudent barking regulation and supervision. agricultural sector that suffers from a severe lack of productive assets and capital, and the full range of inputs. * Train loan officers in agricultural lending including credit risk assessment. * Significant progress in the privatization of banking institutions. * Phase-out subsidized credit and eliminate ad-hoc * Rural Credit Guarantee Fund is the process of organization. injection of credit from the budget. * Subsidized credit from the budget is reduced to short-term seasonal credits in 1997. 5. Institutional Framework Emerging large number of private farms face insufficient support Efficient and effective public sector administration and services, including extension and research. support for private agriculture. * Although the Lithuanian Agricultural Advisory Service (LABS) is * Reorganize and strengthen problem and long-term developing well, some aspects of the farm extension system remain prospect focussed research system. underdeveloped, and there is a need to increase the flow of information from research and education organizations to the advisory * Further develop a private sector farm management and service and farmers. technical advisory service as well as agricultural extension services. * Research direction of state research institutes and universities is only slowly changing from the old axioms in agriculture towards * Continue to emphasize ecologically sound production support for the new emerging farm systems and products. systems. * Institutional strengthening of the Ministry of Agriculture and Forestry and downsizing of the Ministry was implemented in early 1997. Aericulture Related ESW: WB Lending Projects * Agriculture and Food Sector Review. (Grey Cover). 1995 * Klaipeda Environment Project FY 1995 * Agriculture and Forestry Policy Update (Informal Report) 1997 * Private Agriculture Development Project FY 1996 32 MOLDOVA Total Population 4.4 million Food and agriculture in GDP (1995) 42% Agricultural output in 1995 as percentage Rural Population 52,5% Food and agriculturein active labor (1995) of 1986-1990 level 47% Food and agriculture in exports (1992) 50% Livestock production in 1995 as percentage Total Area 3.4 million ha. in imports (1992) 55% of 1986-1990 level 44% Agriculture area: 2.3 million ha. Traditionally net exporter: wine, processed 14% Share of livestock in agriculture. (1995) 31% and unprocessed fruits and vegetables, and Agricultural area in private use (1996) 18% Arable land 76% pork. Share of independent private farms in total Orchards 14% agricultural land (1996) 5% Irrigated 10% Share of private sector in total agricultural Forested 12% output (1995) 35% ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Significant progress in price and market liberalization, with Minimal Government intervention in agricultural AP-ciculture recent setbacks. markets. A. Prices/Subsidies * Most producer prices were liberalized in 1993-95. * Return to the liberal course of market and price policies. * State order for grain delivery for state reserves was re-introduced for the 1996 cropping season. * Remove remaining interventions from grain and milk markets. * Farms with debt to budget receive only 50% of USD 160-180/ton grain price. * Phase out indirect subsidies to agriculture. * Bread prices were liberalized in late 1996. * Deregulate filly the processing and trade margins. * Milk producer prices are kept low with informal interventions * Re-monetization of the sector by proper treatment of and by subsidies provides in the form of tax deductions. inter-enterprise arrears, accumulated debt and revision of tax and social -security payment policies. * Consumer prices are liberalized except dairy products. * Direct producer subsidies are mainly phased out (30 million Lei is budgeted for 1996). * Agriculture receives indirect subsidies via special energy tariffs and input supply schemes. Moldova ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ____________________________________ .ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * Domestic trade is liberalized, but a competitive market structure is * Establishment of commodity exchange or promotion of not in place. the use of commodity exchange in other countries. * Government procurement is restricted to grain, purchased for * Introduction of market methods in procuring grain for state reserves. government purposes and for marketing of grain and input deliveries based on inter-governmental agreements. * Export of some agricultural products, including grains, require registration, and controlled by orientation (minimum) prices. * Revision of registration procedure regarding agricultural exports to remove all remaining features of * Non CIS imports are subject to 10-30% but occasionally higher licensing. (50%) tariffs. * Full liberalization of grain trade. * Grain and fertilizer received through intergovernmental agreements are distributed by non-market methods. * Low and uniform tariffs and no quantitative restrictions on exports. * Development of a grain strategic stock and trade policy. C. Taxation * Agriculture pays land tax, social tax, and road tax. * Develop a fair and non-discriminatory system of agriculture taxation. * About two-thirds of social taxes are collected. * Improve tax collection rates. * Agriculture enjoys some VAT preferences for imported inputs, the system, however, needs to be upgraded. 34 Moldova ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform ar,d pgr..... Slow process of farm restructuring and privatization. Farming structure based on secure transferable land Restructurin2 use rights. * Additional land was provided for household plots and for gardening. (In 1995, 13% of agriculture area.) * Facilitate the process of farm restructuring and improve the process of withdrawal of land and non-land assets from * Land shares were allocated for the farming population and 91% of collective farms. beneficiaries received certificate. * Make the establishment of new private farms, and * Number of independent private farms are increasing but their share farming enterprises based on partnership or cooperation as in land use is still small. (1996, 5% of agriculture area.) easy as possible. * Pilot projects (Nisoporeii, Orhei) provide experience for a national * Use reserve land whenever possible for providing land program of farm restructuring. for new beneficiaries or offer financial compensation instead of decreasing already allocated land shares. * Farm registration and exit procedures were simplified in early 1997. * Create market mechanism for rent, leasing and the establishment of collateral should be developed as soon as * 59,000 private farms and 226 associations involve about 100,000 of possible with the aim of facilitating land consolidation and beneficiaries of land reform out of a total of 983,000. financing efficient farming. * Most of the large scale farms are operating without any significant * Adopt and implement a program of debt settlement for restructuring and are accumulating significant debt. large scale farms. o February 1995 Amendment of Land Code allowing only group exit * Accelerate the process of the creation of a suitable from large farm was eliminated by the Constitutional Court in early property and land registration system. 1996. * The moratorium of agricultural land sales, up to 2001 was declared unconstitutional by the constitutional court. Sales of land certificates inside the large farms and sales of urban and household land is allowed. Procedures for agricultural land sales are being prepared. * The emergence of land markets is seriously constrained by the absence of a well functioning land titling and registration system. * Significant steps were made to establish a uniform cadastre system in early 1997. 35 Moldova ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive Agroprocessing and Privatization and demonopolization is in progress. Private based competitive processing and input supply Services for Agriculture industries. * Agroprocessing and input supply industries are privatized as part of the overall privatization framework. * Increased role of auctions in the privatization process. * Producers of agricultural raw materials received 50% of ownership * The shares of companies privatized based on of agroprocessing. patrimonial bonds should be openly traded as soon as possible. * The initial privatization of agro-processing was completed by the end of 1995. The majority of enterprises, however, are * Promotion of the participation of foreign investors both unconsolidated and lacking of transparent ownership. in auctions and in the second round of privatization. * Significant portions of shares in agroprocessing industries have not * Introduce post-privatization programs to facilitate the been sold and still belong to the state. restructuring of privatized enterprises. * Most the agroprocessing sector enterprises are still operating by the * Develop and implement effective anti-monopoly old fashioned way and are in effect bankrupt. legislation. * Cerealea (grain corporation) and Fertilitatea (input supply * Strictly enforced bankruptcy legislation in order to corporation) are in the process of privatization after initial consolidate the newly established private sector. demonopolization but the process is not fully completed. * Complete the Privatization of Cerealea and Fertilitatea * Anti-monopoly regulations are not fully in place. together with the appropriate restructuring and real privatization of Moldcoop. * Increasing but still limited entry of private sector into processing and input supply. * Limited foreign participation in privatizing agroprocessing. 36 Moldova ISSUE - STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 4. Rural Financin Lack of an appropriate rinancial system for food and agriculture. Viable financial institutions efficiently serving the food and agriculture sector. * Financing in agriculture is not adjusted to the needs of a market based privatized agriculture. * Introduce processors or suppliers' credit schemes to finance farming inputs. * High interest rates and the lack of collateral seriously limits lending to agriculture. * Prepare an action plan to revitalize and financial services. * Development of a rural credit system is underway, with World Bank support. * Implement pilot projects to establish credit unions in the villages. 5. Institutional Framework Adjustment of the institutional framework is at a rather early Efflcient and effective public sector administration and stage. support services. * Government administration reflects Soviet-type structures. * Re-orient Govermnent attention toward private agriculture. * Research/education system has not been adjusted to emerging new conditions. * Prepare and implement a program of re-organization of public administration in agriculture. * Public activities (government research-education) in agriculture are seriously hampered by budgetary difficulties. * Reorganize the Ministry of Agriculture and Food. * Western type of agricultural extension system does not exist. * Review the agricultural education and research system. * A non-Governmental Agricultural Restructuring Agency (ARA) is * Support the emergence of private farm advisory being created to support farm restructuring, services for landowners. Agriculture related ESW: WB lending projects * Agriculture Sector Review. (grey Cover). 1995 * Emergency Drought Recovery FY 1993 Translated into Russian 1995. * Agriculture 1. USD 10 million; effective July 1996 * Review of Agriculture Trade and Trade Policy (Informal Report) 1995. * Agriculture 11. Expected Board date early 1998. * Survey of Agricultural Privatization (Informal Report) 1996. * Agriculture III. FY 1999. * Moldova Agricultural Policy Update (Informal Report) July 1996. * Land Reform and Private Farming in Moldova (EC4NR Policy Note#7 and #9) 1996. 37 UKRAINE JLI*U~~ 52.0 ~million W~Food ad agiutr nNP 942% Agricutua ouptn195 as per'centage Rural Populaton 32% Food and agriculturein active labor (1994) f 1990 level 70% Food and. agriculture inexprs(94 20 L,- Ivetckpoucinin19 a ecetg ;I; t LA r 00 60.37 million ha. in impo rts (199 of 1986-1990 leve:9 Agriculture area;: 41.8 milion ha. Traditionally I pnetexportr: grai, oil seeds, %Sha of livetcki grclur-193 8 sugar,~ dairy products, beef anid pork. ~ Agricultural area in. private use (1995) 14 % Arable land A:ES 80.2%O: Share of; independent private farmsf inD;E:X::;X;i::j:X:gD totalk;::gy: t !fEi SXi::;j:: f :;jAs j :i:tp;t::ta Orchards 1.% agricultural lanid (X995) 2% Irrigated 8.0% Share of private sector in total agnicultural Forested 14.3% utt(94) 30 ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 1. Macro-economic Framework for Significant progress in price and market liberalization constrained Minimal Government intervention in agricultural Agriculture by underdeveloped market structures, markets. A. Prices/Subsidies * Fixed producer prices were abolished for agricultural commodities * Abstain from implementing new distortive price control in 1994. measure. * Wheat prices were deregulated in early 1995 and bread were been * Cap subsidies associated with input prices, support increased to reflect 1994 harvest costs and subsequent inflation. prices, and other producer price subsidies and devise a phasing out schedule for these subsidies in 1997-1998. I Controls on profit and trade margins for wheat, flour and bread products were removed in May 1996. * Remove implicit taxation on agricultural producers, processors, and marketing firms by promoting competition * Lack of competitive domestic markets and underdeveloped trading and domestic market development. system still keep producer prices under border prices. * The agricultural credit subsidies capped at 1996 levels * Scale of credit and other subsidies (inputs) substantially reduced in are to be brought down to real terms in the future. 1995 and 1996 and capped at 1996 levels. * Subsidies include mainly subsidized credit advanced by Government only for spring operations related to grain contracted for sale to the Government. *Net Material Products Ukraine ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED B. Trade Policies * State agricultural purchases reduced in 1994 to roughly 40% of * Create conditions for remonetizing commodity and 1989-92 average levels of shares of state purchases in total marketed payment relations. production. In 1996, these purchases fell to 10% of 1989-1992 average levels. * Ensure that the Customs Service would not impose indicative prices on products not subject to registry. * Total annual state purchases of agricultural products have been capped. a Ensure that all state agricultural procurements are executed on a competitive basis through the agricultural * Increased intervention of regional authorities creates new commodity exchanges, public tenders, and auctions. distortions. * Remove export taxes on live cattle and animal skins. * Remaining agricultural commodities removed from the export registry system in March 1995. * Refrain from intervening in agricultural import and export markets, with the exception of interventions * All agricultural export quotas removed. Remaining quotas on acceptable under the GATT/WTO. grain exports were removed in February 1996. * Acquire the capacity to use the safeguards and * No licensing of agricultural imports and there are average 15% antidumping measures available under the GATT/WTO. tariffs and VAT on imports. * Pursue active trade policy to improve market access for Ukrainian food and agricultural products through the WTO and Cairns Group, and by seeking duty-free access for these products to the markets of the states of the FSU. C. Taxation * 30% profit tax is applied for food, industry, primary agriculture is * Promote a fair and non-discriminatory system of exempt. taxation. * Taxes on intermediaries reduced from 70% to 45% in early 1995, * Reduce differentiation in tax rates across sectors to and to 30% in May 1996. minimize distortive effects on resource allocation. *Net Material Products 39 Ukraine ISSUE STATUS OF REFORMS | WORLD BANK PROPOSED - . ACTIONS/OUTSTANDING REFORMS NEEDED 2. Land Reform and Farm Early stage of land reform and farm restructuring moving toward Secure transferable land use rights conducive to Restructuring privatized farming. promoting long term investment, access to rinancial markets, and enhanced land mobility. * Additional land was provided for household plots and for gardening. In 1995 they covered about 5 million hectares, about 11% * Abolish the moratorium on sale of land or land shares of agriculture land. (currently six years) and modify the current restriction which stipulates that agricultural land which is transferred * In 1992 10% of agricultural area was set aside for reserve to be to new private owners is restricted for agricultural use used to establish new private farms. only. * Number of independent private farms are increasing, however, in * Clarify that the priority right of the collective farm to late-1996, there were only 33.040 covering 1.8% of total agricultural purchase the land of a member who has withdrawn and area. wants to sell his land is a right of first refusal only. * Regulations allow the division of collective and state farm land into * Develop mortgage procedures for land, other real physically identified privately owned shares. estate, and moveable assets. The mortgage law would allow leasers to mortgage their leasehold interest. * Procedures are not conducive enough to support the real restructuring of large-scale farms. * Adopt a resolution to establish a single registry of land and other real estate. * Withdrawal of land and asset shares from newly formed joined stock societies is constrained by complicated procedures. * Withdrawal of land and other property from collective and state farm enterprises would not be subject to approval * There is a six year moratorium on sales of land obtained from by either farm management or the farm members' council. collective farms. * Ensure that no legislation or administrative regulation * Land registration and titling practice do not meet the needs of a restricts the right to or terms of land leases or functioning land market. sharecropping contracts. * By March 1997 issuance of land share certificates had been completed to all entitled beneficiaries in 40% of former collective farms. * Simple and transparent procedures for the exchange of property and land shares (or a combination of the two types) for land plots and physical assets were adopted in April 1996. 40 Ukraine ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 3. Competitive Agroprocessing and Privatization and demonopolization slow in process. Facilitation of the emergence of new and privatized Services for Agriculture restructured firms, and the growth of efficiency in both * State owned agroprocessing and input supply system is in the input and output markets and in agroprocessing. process of privatization (roughly 2,500 enterprises privatized by March 1997). * Devise and execute demonopolization plans to create independent enterprises in the oblasts out of large state- * The period of the closed subscription phase (under the AIS owned agricultural input supply, output marketing, and Privatization Law of 1993) was reduced to a period comparable to the agro-processing enterprises. closed subscription period for non-agricultural enterprises. * Accelerate the privatization of grain procurement and * Increasing entry of private sector into input supply and services. bread industry. * Basic anti-monopoly regulations developed during 1993-1994. * Create a policy and legal environment supportive of direct foreign investment. * Producers of agricultural raw materials have preferential rights to obtain 51% of shares of agroprocessing enterprises. * Ban on privatization of grain procurement and bread industry enterprises was removed in 1995. * Current procedures for privatization are not conducive to foreign investment. 4. Rural Financing Lack of an appropriate financial system for food and agriculture. Viable financial institutions efficiently serving the food and agriculture sector. * Financing in agriculture is not adjusted to the needs of a market based privatized agriculture. * Phase out all credit subsidies. * High interest rates and the lack of collateral seriously limits lending * Assess the current structure of rural finance and to agriculture. recomnmend methods to defray transactions costs and reduce risk in rural lending. * Budgetary allocations and credit emissions for agricultural procurements were reduced significantly in 1995-96 under the reform * Eliminate distortionary credit policies. programs supported by the IMF and World Bank stabilization and structural adiustment operations. 41 Ukraine ISSUE STATUS OF REFORMS WORLD BANK PROPOSED ACTIONS/OUTSTANDING REFORMS NEEDED 5. Institutional Framework Adjustment of the institutional framework is at a rather early Efficient and effective public sector administration and stage. support services. * Government administration reflects Soviet type structure. * Prepare and implernent a program of reorganization of public administration in agriculture. * Research/education system has not been adjusted to emerging new conditions. * Review and streamline agricultural education and research system. * Public activities (government research-education) in agriculture are seriously hampered by budgetary difficulties. * Support the emergence of private farm advisory services. * Western type of agricultural extension system does not exist. Agriculture related ESW: WB lending proiects * Agriculture and Food Sector Review. (Red Cover). 1994 * Agriculture Seed Development FY 1995 Translated into Ukrainian 1995. USD 32. Effective July, 1996. * Land Reform Monitoring Study (WB Discussion Paper) 1994 * Ag SECAL FY 1997, Effective Dec. 1996 Translated into Russian 1995 (This is the first Ag. SECAL in the region and is expected to accelerate the reform process). * Review of Agriculture Trade and Trade Policy (Informal Report) 1996 * Pre Export Guarantee Facility FY 1997 Presented to Board March 1997 * Agricultural Production, Pricing and Marketing Structures in Ukraine (EC4NR Policy Note #11) May 1997 * Agricultural Services: FY 1997 Project preparation stage 42 OTHER REPORTS IN THIS SERIES INCLUDE: EC4NR Agriculture Policy Note #l: EC4NR Agriculture Policy Note #2: Armenia Agriculture Policy Update - December 1995 Land Regislration and Land Titling Projects in ECA Countries - May 1996 EC4NR Agriculture Policy Note #3: EC4NR Agriculture Policy Note #4: Latvia Agriculture Policy Update - July 1996 Current Status ofAgricultural Reforms in EC4 Countries - July 1996 EC4NR Agriculture Policy Note #5: EC4NR Agriculture Policy Note #6: Moldova Agriculture Policy Update - September 1996 Land Reform and Private Farms in Georgia: 1996 Status - October 1996 EC4NR Agriculture Policy Note #7: EC4NR Agriculture Policy Note #8: With Farmer's Eyes: A Grassroots Perspective on Land Privatization Land Reform and Private Farms in Armenia: 1996 Status - December 1996 in Moldova - October 1996 EC4NR Agriculture Policy Note #9: EC4NR Agriculture Policy Note #10: Land Reform and Private Farming in Moldova - January 1997 Estonia Agriculture and Forestry Policy Update, February 1997 EC4NR Agriculture Policy Not #11: Agricultural Production, Pricing and Marketing Structures in Ukraine - May 1997 Additional copies of this report and the policy notes listed above can be obtained from Ms. Phyllis Harrison at extension 32189.