Agriculture and Adaptive Capacities
law. In 2006 the government financed 80 percent of the premium cost of insurance and planned to finance 50–60 percent of premium costs in the following years. As Moldasig grows, the government will take on contingent liabilities and will provide increasing subsidies into the future. The agricultural insurance market in Moldova is still very small and the World Bank has recommended the piloting of alternative approaches such as weather index insurance to mitigate extreme weather events like hail, frost, and droughts. • Current agricultural subsidies are inefficiently implemented. Most agricultural subsidies in Moldova are recurrent subsidies rather than investment subsidies and are provided to larger corporate farmers rather than smaller household-based producers. After 2001, subsidies in Moldova increased, especially in the cereal and oil seed markets, despite the World Bank’s advice to improve the quality of taxation and customs rather than increase revenue levels. These subsidies are generally inefficient and fail to help the poor (World Bank 2006a). There has been no evidence that subsidizing agricultural inputs, such as fertilizer, irrigation operations, energy, and pesticides, promotes long-term growth (World Bank 2006b). Additionally, large farms in Moldova are generally less efficient than individual family farms, so directing subsidies at large-scale corporate farms is not the best use of scarce resources. (World Bank 2006b). These inefficiencies are reflected in the stagnation of the agricultural sector despite a period of increased subsidies. In 2004, MDL 236 million, or 37 percent, of total public expenditure went to farm subsidies and a growing number of subsidy schemes. Most subsidies from the Ministry of Agriculture and Food Industry between 2001 and 2004 were credit incentives to stimulate participation in credit programs through grants to farmers who repaid agricultural loans (World Bank 2006c). In 2006 plans included reducing inefficient subsidies, such as machinery and technology stations (MTS) subsidies, and directing agricultural subsidies at producer cooperatives rather than large farmers (World Bank 2006c). Recently, the World Bank suggested that Moldova redirect agricultural subsidies toward more efficient investment grants and reduce agricultural subsidies by MDL 350 million, especially for larger farms, as part of budget consolidation and tighter fiscal policy. In the 2006 Agriculture PER report (World Bank 2006b), World Bank personnel also recommended that subsidies be more streamlined and optimized to support increased productivity. Historically, the largest and least efficient subsidies were for the value-added tax (VAT) paid on fertilizers and pesticides and for VAT charged on outputs. These subsidies benefit larger commercial farmers and encourage overuse of fertilizers and pesticides (World Bank 2010c). Changing the types of subsidies and their recipients may enable subsidies to promote agricultural growth. • Policy on seed provision should be improved. Appropriate seeds and seedlings are one way for farmers to be prepared for severe weather (World Bank 2007b). Improved seed varieties are also a crucial part of creating a highvalue export market (World Bank 2005). In 2004 the total expenditure for Looking Beyond the Horizon • http://dx.doi.org/10.1596/978-0-8213-9768-8
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