Public Disclosure Authorized Public Disclosure Authorized Moldova Poverty Assessment 2016 Public Disclosure Authorized Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty Reduction and Shared Prosperity Public Disclosure Authorized Report No. 105724-MD Moldova Poverty Assessment 2016 Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Table of Content Table of Content ................................................................................................................................ iii List of Tables ......................................................................................................................................iv List of Figures .....................................................................................................................................v Acknowledgements .............................................................................................................................vi Overview ............................................................................................................................................vii 1. Introduction ................................................................................................................................. 1 2. Moldova’s farming sector: key features and institutional environment ......................................4 2.1 Moldova’s farming sector and poverty in rural areas ..............................................................................5 2.2. The institutional environment for agriculture and rural development .................................................8 3. Small and (semi) subsistence farms in Moldova ....................................................................... 12 3.1 Small and (semi)subsistence farms: definitions and operationalization .............................................13 3.2 Moldovan small farms: some stylized facts ............................................................................................15 4. Small farms’ livelihood pathways towards structural change in agriculture ............................. 24 4.1 Is structural change happening? Changes in farm sizes and subsistence orientation ......................25 4.2 Drivers of farm growth and market integration ....................................................................................30 4.3 Drivers of non-farm diversification and migration ...............................................................................33 4.4 Poverty implications of being a smallholder and following certain livelihood strategies ................36 5. Implications and policy recommendations ............................................................................... 40 5.1 Summary of key results and conclusions ................................................................................................41 5.2 Lessons for Moldova’s small-scale farms from Romania’s and Poland’s accession to the EU .......42 5.3 Policy recommendations ............................................................................................................................45 6. References .................................................................................................................................. 53 7. Annex ......................................................................................................................................... 57 iii Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity List of Tables Table 1. Descriptive statistics of household welfare and farm characteristics (2007 – 2013) ......................................19 Table 2. Welfare and farm characteristics along poor and non-poor farms .................................................................20 Table 3. Welfare and farm characteristics along farm size classes ................................................................................21 Table 4. Welfare and farm characteristics along farm types (subsistence vs more market-oriented) ..........................22 Table 5. Welfare and farm characteristics along peripheral and urban locations (measured as proximity to Chisinau) ...23 Table 6. Probability matrix for switches between farm size classes along total and available land ..............................26 Table 7. Probability matrix for switches between farm types: subsistence oriented vs. more market integrated ........26 Table 8. Probability matrix for switches between farm types: full-time commercial farm vs. diversified/subsistence farms ...28 Table 9. Major factors of influence on subsistence farm production ..........................................................................30 Table 10. Correlations of farm growth and shrinkage with selected variables ............................................................32 Table 11. Measures of income diversification at farm household level .......................................................................34 Table 12. Factors of influence on income diversification by socio-economic and geographic strata (2013): Poisson regression .........................................................................................35 Table 13. Determinants of farm household’s non-farm income activities: probit regression using the 2007-2013 HBS panel ........................................................................................36 Table 14. Poverty headcount (in percent) and Gini index in Moldova (2007-2013) ....................................................37 Table 15. Income strategies and poverty effects (2013) ...............................................................................................38 Table 16. Income distribution and remittances (2013) .................................................................................................39 Annex Table 1. Agricultural Holdings by Size Classes (Total Land, ha), 2011 ...........................................................58 Annex Table 2. Agricultural Holdings by Size Classes (Total Land, ha) .....................................................................58 Annex Table 3. Welfare and farm characteristics along urban and rural locations .....................................................59 Annex Table 4. Agriculture in EU, Poland, Romania and Moldova: Comparison of main indicators .......................60 iv Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity List of Figures Figure 1. Structure of the agricultural sector by farm size, 2011 .........................................................................vii Figure 2. Cumulative distribution of farms and areas farmed, 2011 .............................................................................6 Figure 3. Share of agricultural land in private ownership, 1980-2015 ..........................................................................10 Figure 4. Cumulative distribution of family farms and land by available land (ha) ...................................................15 Figure 5. Relevance of income sources conditional upon total number of income sources, 2013 .............................33 Figure 6. Income versus expenditure based headcounts .......................................................................................36 v Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Acknowledgements This report was prepared by a team of the Leibniz Institute of Agricultur- al Development in Transition Economies (IAMO), including Judith Möllers, Thomas Herzfeld, Simone Piras, and Axel Wolz, under the guid- ance of María E. Dávalos (TTL, Senior Economist, Poverty and Equity Global Practice, World Bank) and Caterina Ruggeri Laderchi (Senior Econ- omist, Poverty and Equity Global Practice). The team is grateful for com- ments received from World Bank colleagues including Marianne Gro- sclaude, Hanan Jacoby, Tu Chi Nguyen, Felicia Pricop, Irina Schuman and Victoria Stanley. vi Structural Transformation of Moldovan Smallholder Agriculture: Implications for Poverty and Shared Prosperity Overview Overview The agricultural and food production sector plTheays agriculturala key role andin fighting food production poverty sector and plays food a key role in fight- ing poverty and food insecurity in Moldova, but is facing critical insecurity in Moldova, but is facing critical challenges to modernize and integrate into challenges to modernize and integrate into the international market. the international market. Not only is agriculturalNot land only the is agriculturalcountry’s landmain the natural country’s resource, main natural the resource, the agri- agricultural sector still accounts for 30 percent of culturalemployment, sector still with accounts an additional for 30 percent 24 percent of employment, of with an addi- the adult population engaged in low-intensity agriculttionalural 24 work.percent The of the