Note #8

External Trade As An Art
by Galina Şelari

Information of the National Bureau of Statistics on Moldova’s foreign economic activity during January – April 2006 has reminded again that economic and social stability of the country depend to a considerable degree on agricultural sector – more than a half of Moldovan citizens live in rural areas, about 50% of working population is employed in agriculture and related branches of industry, while branches processing agricultural products produce more than 50% of industrial output. And, finally, it is these goods that make up more than ⅔ of Moldova’s export. This is our reality, which we have to take as a determinant and, consequently, keep track of and foresee problems ahead of time.  

So, over the four months of the current year, for the first time during the “economic growth stage”, country’s export dropped by 10%, mainly due to a sharp drop in exports as regards virtually all main items of agricultural export: cattle-breeding (-22.9%), plant cultivation (-15%), foodstuffs and beverages (-13.2). At that, of course, attention is being focused at the main item of Moldovan export – wine products, which dropped by 11% (increased by +11% in previous year).  

At that, stable growth of imports continues. The causes are understandable: 6-year economic growth and still increasing remittances from Moldovan citizens working abroad. Yet further steady raising of Moldova’s export was hampered by the interdiction of import and sale of Moldovan wines, fruits and vegetables in Russia. As the Minister of Economy and Trade put it, the current situation is just “a technical misunderstanding” with a certain political “dressing”. But as a matter of fact, real technical problems concerning export of fruits and vegetables, as well as the “wine issue”, have already been current for a year. 

A technical problem is not a problem that is easy to solve. WTO stipulates for special procedures and mechanisms meant to settle “technical disputes”. And their settlement, as practice witnesses, is not swift. But Russia is not a member of WTO yet, and we cannot use these, even though they are “long-playing”, procedures. But there is another specific international organization – International Organization of Vine and Wine (OIV). Its main goal is to develop the branch in the interests of member-states, as well as to ensure conformity of analysis methods with current international standards recognized by OIV, but, for some reason, it was only May 2006, when it came to our mind and we applied for mediation in settlement of our technical disagreements with Russian partners. And, according to specialists, absence from market for a month threatens with a another loss of 10% of Moldova’s share. 

Moldovan agrarians are now seriously worried about the problem what to do with the harvest, including grapes, who to sell it to, rather than how to grow it. And the news that prices for gasoline and diesel oil are growing again does not add to their optimism. 

Of course, we cannot but agree with the Minister of Economy that marketing outlets have to be diversified, “since it is an elementary requirement from the point of view of economic security and worldly wisdom”, and the situation is indeed economically insecure, when about ⅓ of all exported goods and ⅔ of goods included in the main commodity group are oriented at market of a single country – Russia. And we could fight trade deficit with investments – “we should invest not only in production and development of technologies, but in promotion of goods in other markets as well”. 

But it is not understandable why is diversification of marketing outlets linked with reduction of presence in the traditional, won with difficulty and very capacious Russia’s market? At that, we forget that gaining new markets, as well as penetration to other markets segments, is troublesome, slow and expensive. The more so as the situation in the world wine market is not simple at all. 

Consumption of wine grows in the world, as compared to other beverages, according to data of the information-analytical company Cyclope. Advance of the New World’s producers (USA, Argentina, Chili, as well as Australia, New Zealand and South Africa) has slowed down and European wine-makers, especially in France, started winning back positions abandoned during the 90’s. at that time, export of Californian, Chilean, Argentinean wines increased more than four times, while Australian – 12 times. And it is presupposed that competition between different producers will grow in the nearest future, especially for Chinese and American markets, and it is hard to say who will win this fight. Let us specifically mention the conclusion that world wine-makers assess Russian market as one of most promising: since 2000, per capita wine consumption increased in Russia 2.8 times (up to 7 liters a year). Which is not a limit: improvement of welfare in the country can lead to that consumption of strong drinks can decrease. And consumption of wine can increase proportionally. 

By the way, expansion of sale of French wines was achieved mostly due to the increased sales in Russia. But China, from the wine-makers’ point of view, is just “a virgin soil”: per capita consumption of wine is only 0.27 liters here; it is very hard to penetrate and gain a foothold in the Chinese win market, considering its semi-closed market and tensed competition. It is also obvious that considerable expansion of the presence of Moldovan wines in the EU countries is quite unlikely: according to estimates of World Bank experts, share of goods exported by Moldova to European Union and not covered by preferential conditions does not reach 2%, and alcoholic beverages are not included in GSP scheme. While competing with the leading wine-makers on their own territory “under common conditions” is very difficult for us yet. Moreover, EU countries have many problems, even though different from this, of their own. 

The news that there is overproduction of wine in Europe came as a surprise for many in Moldova. On June 7, Committee on Wine Market Regulation under the European Commission made decision on urgent distillation of wine in France and Italy. It is presupposed that 3 mil hectoliters of French wine (including 1.5 mil of high-quality wine) and 2.6 mil hectoliters if Italian wine (including 100 thou of high-quality wine) will be processed. € 131 mil will be allocated from the EU budget for these goals. At that, applications for distillation received from Spain and Greece are not considered yet. Crude alcohol obtained from distillation can be used only for technical needs or as bio fuel. 

Commenting on beginning of the “wine distillation campaign”, Commissioner on Agriculture and Agricultural Development, Mariann Fischer Boel noted that technical distillation begins to be a usual and depressive instrument of wine market regulation in EU: producers are supported, but the key problem is not solved – too much wine is produced in Europe and it cannot find marketing outlets. 

Therefore, in opinion of the European Commission’s commissioner, wine sector has to be reformed; and some guidelines have already been set:

·        To increase competitiveness and improve quality of wines (“wines from EU countries are the best in the world”), to restore traditional and penetrate new markets both inside and outside EU;

·        To create a system of transparent and strict market mechanisms ensuring balance of demand and supply in the wine market;

·        To create conditions for preservation of the best wine-making traditions in EU and improve social and natural environment in rural areas.