Food industry is a sector of utmost importance in terms of food safety. As part of the value chain in agriculture, this sector is closely linked to both agricultural production and retail units and HORECA. The export potential is significant, especially if we take into account the added value compared to agricultural raw materials. At the same time, this potential is not fully realized due to the need to comply with EU requirements for animal origin production.

Factories in the food industry sector have been operating under a normal regime under the terms of the state of emergency, although the adjustment to new sanitary requirements had an impact on costs. In particular, additional costs were incurred for the implementation of hygiene rules, while wearing visors and protective gloves negatively affected labor productivity. On the other hand, the need to comply with sanitary norms is clear, because a small infection outbreak is able to stop production, and the revenue missed due to stoppage is much higher than compliance costs.

The structure of sales has also changed. In particular, sales through small shops and sales in the villages have decreased. The closure of catering establishments during the state of emergency, as well as the closure of schools and kindergartens, clearly contributed to the reduction in sales.

A common problem for all processors in the food industry are differentiated VAT rates. Agricultural producers can sell production at 8% VAT, while processors are obliged to pay 20% VAT. Respectively, the difference of 12% makes agricultural processors uncompetitive compared to intermediaries that offer a higher price and recover VAT when exporting. This distortion of the market generates losses for the national economy. Instead of encouraging exports of processed agricultural production, it stimulates exports of raw materials. A reduced VAT rate, undifferentiated for the entire value chain, would normalize the market and allow reaching the full export potential.

Fruits and vegetables

Consumer demand for canned fruits and vegetables has changed. As they are not considered primary necessities, their domestic sales decreased by about 20-25% and exported production decreased by about 15% in the first half of this year.

In the domestic consumption, about half of production of juices and canned fruits and vegetables is domestic, while the other half is imports. The competition conditions are not favorable for local producers because the “natural” component in the imported juices is lower and makes the prices of these product categories more competitive. Making full use of new export markets is limited to countries with which the Republic of Moldova has free trade agreements. There is a huge potential for trade on the markets of China, India, Israel, but tariff barriers of 20-50% prevent this.

Bakery products

As for the confectionery and bakery segment, in March-April there was a sales increase of 10-15% after which sales have stabilized. The closure of kindergartens, schools and catering establishments also had a negative impact on this segment of food industry. Export potential of confectionery and bakery products is largely untapped. Sporadic increases have been registered on the US and German markets (biscuits, sweet cakes), but the EU market is inaccessible for a wide range of products containing animal components (butter, milk, eggs). Accordingly, in order to access EU shelves, local producers are forced to import components which, although accessible on the local market, are not properly certified.

Sunflower oil production

Both production and sales of sunflower oil have not been affected by COVID. To the contrary, being a product of first need, its external consumption is increasing. In addition, fluctuations in sunflower oil production due to the temporary shutdown of the activity of some factories abroad revealed new niches for selling production (Ethiopia, Tanzania). The turnover of oil factories was estimated to have increased by 15% at the time of consultations.

The streamlining of customs clearance procedures is of the utmost importance. Every day, about 120 transport units enter and leave the plant, but the procedures for obtaining certificates of origin complicate the operational management.

The import component in the production of sunflower oil is negligible, the raw material being 97% sourced locally. However, fluctuations in agricultural sunflower production, have a negative influence on the export potential of sunflower oil. In a “good” year, when the production of sunflower is 900-950 thousand tons, the processing of 340 thousand tons of seeds into oil is not an issue. Conversely, if the harvest is low and agricultural producers sell their harvest for export, oil mills run out of raw material. Due to the April-May drought, producers expect a reduced harvest of only 500 thousand tons of sunflower, but when the entire crop is exported, processing capacities will remain under-used.

Dairy products

The dairy sector is currently facing a double crisis, with the pandemic having a secondary impact. Activity restrictions applied to restaurants, schools and kindergartens that have limited market access to some extent, but the consumption of milk and dairy products in stores has not been affected. Overall, turnover during the state of emergency decreased by 10-15%. On the other hand, the drought that occurred this year negatively affected the source of raw material, namely milk purchased from the population that owns cows, goats and sheep. For the latter, high feed prices served as an incentive to slaughter animals when the price of milk delivered to the producer remained at the same level.

The national particularity of milk industry is that 80% of raw material is purchased directly from the population through a network of collectors employed by dairy factories. Thus, at the moment, the number one priority for the dairy industry is support for small farmers that are supplying raw material in order to make sure that they have feed. A bureaucratic barrier for the implementation of this solution lies in the fact that subsidies offered by AIPA are aimed at agricultural producers in the formal sector, however the absolute majority of farmers, suppliers of milk as raw material, do not have a registered status.

Due to the fact that the term of consumption of milk and natural milk products is short, the local market is dominated by local production which constitutes about 70%, while import production (pasteurized milk and dairy products) constitutes about 30%. There is a potential to replace imports with local production only when raw material suppliers would be protected. In this regard, there are only isolated cases of vertical integration of the value chain. A few large cattle, sheep and goat farms have managed to set up small milk and dairy production facilities, but due to the informal and dispersed nature of milk suppliers, there are no cases when large factories would exercise control over them.

The export potential of milk and dairy products is untapped. The fundamental obstacle faced by milk and dairy producers (which in terms of prices could be competitive in Romania) lies in the implementation of European standards. To obtain export rights it is necessary to implement product traceability and the application of quality standards throughout the value chain “from farm to fork”. This does not happen due to the fact that suppliers of raw materials are small farmers, unregistered and respectively, unsupervised.

Meat and sausages

Overall, meat production decreased between March and June 2020, compared to that period of the previous year by around 10%. Activity restrictions applied to restaurants, schools and kindergartens, as well as the ban on “group activities”, which traditionally stimulated the demand for meat for skewers during the summer season, played a decisive role. At the same time, the costs of pandemic prevention measures, such as working in two shifts and large quantities of disinfectant material, have been absorbed by meat producers.

Meat produced in the Republic of Moldova cannot compete in the CIS countries due to small quantities and cannot be exported to the EU due to non-compliance with the system which is under continuous evaluation by EU experts. Currently, of the 7 indicators that qualify chicken exports only 4 are accredited. However, the export potential of meat production is undeniable – as soon as exports to the European Union are allowed, local producers are ready to deliver chicken to Romania and other countries. In order to advance negotiations with the EU, an important element is to solve the problem of animal by-products (waste) by creating a unit for their processing.

Internally, the sector is forced to work in an environment of unfair competition from unauthorized producers. According to estimates, they hold about 20-30% of the meat market, avoiding both tax obligations and compliance with sanitary-veterinary rules (meat is slaughtered in hygienic conditions). Unregistered farms are not targeted by ANSA, and the marketing of meat produced by such establishments is allowed on the local agricultural market by veterinarians.

* This information is collected during the discussions conducted by the experts who elaborate the Impact Study of the COVID-19 pandemic on the sectors of the economy. The data can be taken from the website www.consecon.gov.md only with the obligatory mention of the source “Economic Council under the Prime Minister of the Republic of Moldova” and the specification that “The impact study of the COVID-19 pandemic on the economic sectors is carried out by The Economic Council jointly with the Ministry of Economy and Infrastructure, with the support of the European Bank for Reconstruction and Development and the United Kingdom Government Fund for Good Governance. ”

The Secretariat of the Economic Council to the Prime Minister is supported by the European Bank for Reconstruction and Development, funded by the UK Government’s Good Governance Fund, and the International Finance Corporation’s Investment Climate Reform Project funded by the Government of Sweden’s International Development Agency.

The Secretariat of the Economic Council to the Prime Minister is supported by the European Bank for Reconstruction and Development, funded by the UK Government’s Good Governance Fund.