Project "Facilitate the Trade of Agro-food Products in the Black Sea Basin (FTAP)" Number of the project:

Transcription

1 Project " (FTAP)" Number of the project: MIS-ETC 185 THE ANALYSIS OF THE FRUIT MARKET IN ROMANIA, UKRAINE AND MOLDOVA 2012 Common borders. Common solutions.

2 EXECUTIVE SUMMARY...4 INTRODUCTION...5 i.1 Scope of the research...5 i.2 Research methodology...5 i.3 Structure of the report...5 CHAPTER I: ANALYSIS OF FRUIT PRODUCTION AND FOREIGN TRADE INDICATORS GENERAL INFORMATION ANALYSIS OF INDICATORS BY COUNTRY AND TYPES OF FRUIT Analysis of fruit sector in Moldova Analysis of the fruit sector in Ukraine Analysis of the fruit sector in Romania ANALYSIS OF FRUIT TRADE IN THE REGION...15 CHAPTER II: ANALYSIS OF COMPETITIVENESS AND DISTRIBUTION ANALYSIS OF COMPETITIVENESS SYSTEM OF DISTRIBUTION OF FRESH FRUIT AND VEGETABLES REQUIREMENTS OF THE BUYER REGARDING PRODUCTS AND SUPPLIERS SEASONALITY OF SALES AND PRICES...19 CHAPTER III: REGULATION OF FRESH FRUIT EXPORTS IN THE REGION PROCEDURE OF EXPORTING FRUITS FROM THE REPUBLIC OF MOLDOVA TO ROMANIA AND UKRAINE Operations prior to customs clearance Customs procedures a Post-clearance procedures in Romania b Post-clearance procedures in Ukraine Monitoring of customs revenues for goods TAXATION OF FRUIT AND VEGETABLES IMPORTS IN THE REGION Customs duties in the region Minimum entry prices for import of fruits in EU...33 CHAPTER IV: TRADE DEVELOPMENT BARRIERS IN THE REGION...35 CHAPTER V: CONCLUSIONS AND RECOMMENDATIONS CONCLUSIONS RECOMMENDATIONS...38 Figures: Figure 1. Dynamics of the fruit orchard areas in Moldova, Ukraine and Romania, thousand ha...6 Figure 2. Evolution of foreign trade, production and market volume of apples in Moldova, tons...7 Figure 3. Export of apples from Moldova, Figure 4. Evolution of foreign trade, production and market volume of plums in Moldova, tons....8 Figure 5. Export of plums in Moldova, Figure 6. Evolution of foreign trade, production and market volume of peaches in Moldova, tons...8 Figure 7. Export of peaches from Moldova, Figure 8. Import of peaches to Moldova in Figure 9. Evolution of foreign trade, production and market volume of apples in Ukraine, tons....9 Figure 10. Import of apples in Ukraine in Figure 11. Evolution of foreign trade, production and market volume of plums in Ukraine, tons...11 Figure 12. Import of plums in Ukraine in Figure 13. Evolution of foreign trade, production and market volume of peaches in Ukraine, tons...12 Figure 14. Import of peaches and nectarines from Ukraine in Figure 15. Evolution of foreign trade, production and market volume of apples in Romania, tons...13 Figure 16. Export of apples from Romania, Figure 17. Import of apples to Romania in Figure 18. Evolution of foreign trade, production and market volume of plums in Romania, tons Figure 19. Export of plums from Romania, Figure 20. Import of plums to Romania in Figure 21. Evolution of foreign trade, production and market volume of peaches in Romania, tons...14 Figure 22. Export of peaches and nectarines from Romania, Figure 23. Import of peaches and nectarines to Romania in

3 Figure 24. Porter s five forces analysis for the sector of fresh fruit and vegetables in the region...16 Figure 25. Minimum entry prices for fresh apples, plums, peaches and nectarines in EU, euro/kg...34 Tables: Table 1. Matrix of the importance of the bilateral trade in fruits (apples, plums and peaches) between Moldova, Ukraine and Romania...14 Table 2. The Competitive matrix for fruits in the region (1 min., 7 max.)...16

4 Executive Summary EXECUTIVE SUMMARY 4 Fruits from Moldova and Ukraine are sold mostly in Russia and Belarus, the remaining exports are insignificant. Moldova, practically does not import apples and plums, but imports peaches from Greece for the re-export to Russia. Ukraine imports significant quantities of apples from Poland, whereas plums and peaches are shipped from Greece, Spain and Italy. Romania, as an EU member, has a different profile of export and import in comparison with Moldova and Ukraine. The exports of apples have significantly increased and the main destination in 2011 was Hungary. The plum trade did not register significant values. Peaches were not generally exported, but were imported from Italy, Greece and Spain. We can conclude that in case of the exports, the geography of the deliveries coincides for Ukraine and Moldova, whereas in case of imports all three countries are being supplied from the same suppliers. On all those three markets, the market rate of modern retail is increasing. If in Moldova and Ukraine the sales volume of fruit and vegetables via retail networks lies within 10-15% of the market volume, then in Romania the respective indicator is already exceeding 50%. Once the distribution system changes, the general requirements towards the product and the supplier change as well: the product must be calibrated, sorted, washed, delivered in due time and must have a longer storage life. Also, payment is requested within a period of days. Analysing the competitiveness level in the sector according to Porter s 5 forces analysis, we may conclude that the level of competition on the market is moderate, the number of suppliers and customers is high, fragmentation of both suppliers and customers is observed (except Romania, where customers are more consolidated), the risk of new entries on the market is moderate and exit from the business is not easy. Once the income of the population decreased, the customer tends to migrate from exotic to traditional fruit (cheaper) and from fruit, in general, to vegetables. Regarding the competitiveness of fruits at the regional level, analysed through the competitiveness matrix, and based on comparison of the quality, price, export increase, concentration of supply, post-harvesting infrastructure and tariff barriers, we may conclude that fruits from the Republic of Moldova are the most competitive in the region, followed by those from Ukraine and Romania. Among major problems in the development of fruit exports there are: quality issues; efficiency of the production; a risky distribution system, when the majority of sales are controlled by intermediaries who are not interested in developing alternative distribution channels; difficult, costly and time-consuming export procedures; tariff barriers on free exchange of goods between Moldova-Romania and Romania-Ukraine; the majority of vegetal products in the three countries is similar, which causes more rivalry than cooperation in the field of mutual trade with fresh fruit and vegetables. Recommendations related to the development of the trade in vegetal production in the region include: Moldova insisting on removing the Minimum Entry Prices during negotiations on the Deep and Comprehensive Free Trade Zone with EU; establishing of the single window for all certificates necessary for the export of vegetal production; subsidizing marketing co-operatives/ producer s groups for investments in the storage and post-harvesting capacities, as well as of joint sales via co-operatives; informing the producers on the export procedures thereupon; creating a regional system of monitoring the prices for the vegetal production on the markets in the region; assisting in the participation of the producers to market days and regional farming exhibitions.

5 Introduction 5 INTRODUCTION i.1 Scope of the research The report hereby was drafted by the Magenta Consulting company upon the order of the National Federation of Agricultural Producers from Moldova AGROinform which is implementing the Project Facilitate the trade of agro-food products in the Black Sea Basin (FTAP) financed by the European Union within the frame of the Joint Operational Program BLACK SEA The research is focused on the analysis of the fruit sector with the topic: Research of the regional fruit market for expanding opportunities of transborder trade: Moldova, Romania, Ukraine. The scope of the research is to analyse the current state of affairs and to clarify development opportunities of cross-border trade in fruits (in particular apples, plums and peaches) among the Republic of Moldova, Ukraine and Romania. i.2 Research methodology The secondary information for this study was collected, for the great part, as per the method of in office research. Public information resources on internet were used, such as the Comtrade, Faostat and other databases, as well as available sector related reports. Also, part of the information was obtained directly from the official statistics authorities from Moldova, Ukraine and Moldova. The primary information was obtained via comprehensive interviews with fruit and vegetable exporters from Moldova, as well as with the importers, dealers and wholesalers from Ukraine and Romania. Overall, 22 companies were interviewed. At the same time, the methodology of the research included such instruments as Porter s 5 forces analysis for the analysis of the competitiveness level in the sector and the competitiveness matrix for the comparative analysis of competitiveness in those three countries subject to research. i.3 Structure of the report The report hereby comprises the following chapters: Executive summary contains a brief description of the results of the research. General information describes the current state of affairs and the trend in supply and demand for products researched in the report. The external trade comprises the analysis of trends in production, export, import and demand for each product and each studied country. In addition, the chapter hereto includes the analysis of trade among the Republic of Moldova, Ukraine and Romania. The distribution and competition contains the description of distribution trends in the three countries, the analysis of the level of competitiveness and comparative competitiveness. At the same time, this chapter presents the requirements of the customers towards the products and suppliers. The regulatory framework contains the detailed description of export procedures in Ukraine and Romania, of necessary documents and line authorities entitled to elaborate them, as well as the analysis of tariff barriers in the external trade among those three countries. Barriers in trade development comprise the detailed description and analysis of various obstacles which inhibit the trade in vegetal production among those three countries. Conclusions and recommendations specify the overall situation in the sector subject to research in the region and propose a set of concrete actions necessary for improvement of the situation of vegetal production export in the region.

6 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators 6 CHAPTER I: ANALYSIS OF FRUIT PRODUCTION AND FOREIGN TRADE INDICATORS 1.1. GENERAL INFORMATION The Republic of Moldova, Ukraine and Romania are three neighbouring countries, located in the Eastern part of Europe, that have access to the Black Sea. All these three countries have a developed agriculture, which is an important part of their economy. Ukraine is the largest in the number of population, with 45.6 million inhabitants, followed by Romania, with 19 million, and the Republic of Moldova, with 3.6 million. The GDP per capita is highest in Romania ($15,163), followed by Ukraine ($7,251) and Moldova ($3,392), according to the World Bank data for Agriculture, in general, and fruit production in particular, are developed in all three researched countries. The diagram below shows the comparative dynamics of the areas of fruit orchards. Figure 1. Dynamics of the fruit orchard areas in Moldova, Ukraine and Romania, thousand ha R. of Moldova Ukraine Romania Source: Official statistics authorities from the Republic of Moldova, Ukraine and Romania As shown in the diagram above, the dynamics of orchard surface is quite stable in all three countries. It is interesting that in Moldova the orchard surface is higher than in Romania, although Romania is significantly larger than Moldova in terms of the total area and population. Ukraine is 13 times larger than Moldova in terms of population; the orchard surface is only 60% higher. This leads to the conclusion that the fruit production is a more important industry for the Moldovan economy than for the economies of the neighbouring countries. Speaking about the three studied fruits - apples, plums and peaches, including nectarines, which are basic fruits grown in all three countries, we should mention that in Moldova the exports of the given products constitute 69% of all the produced volume, while in Ukraine the share of the exports from the total production is 3% and in Romania, respectively, 3.9%. This statistic shows that in Moldova the fruit production is export-oriented, while in Ukraine and Romania fruits are produced mainly for domestic consumption. Despite these factors, the per capita consumption of fruit in Moldova is higher (65 kg / year) than in Ukraine (53 kg / year). Generally, all the three studied countries mostly cover their consumption of fruit; exceptions are exotic fruits that are not grown in the region. In this chapter the basic indicators are analyzed in the dynamics of the market of the fruits in the region and namely, the production, export, import and the volume of the market for all the fruits studied in the Republic of Moldova, Ukraine and Romania. For these products and countries, where the official statistics is available, it is taken into the account for the identification of the market volume. Also, the exports and the imports are analysed per each separate country.

7 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators ANALYSIS OF INDICATORS BY COUNTRY AND TYPES OF FRUIT Analysis of fruit sector in Moldova Apples Figure 2. Evolution of foreign trade, production and market volume of apples in Moldova, tons Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Moldova Apples represent a basic export product of the vegetal production in Moldova. About 70-80% of the apples produced in Moldova are exported, amounting to tons in As shown in the diagram above, the production of apples ranges without a certain trend, while exports grow every year. Volume of the market includes the production for fresh consumption and processing. Such large fluctuations, as shown in the diagram, as a rule, are not typical for the fresh fruit market. Therefore, we can draw conclusions that the last three years fewer apples were processed and much more were sold fresh. Figure 3. Export of apples from Moldova, Kazakhsta n 1% Belarus 3% Romania 2% Russia 94% Source: UN Comtrade database The diagram from the left side demonstrates that the main destination of the apples export from the Republic of Moldova is the Russian Federation, which had in 2011 a quota of 94% of the apples export from the Republic of Moldova. About 3% of the total export was intended for Belarus, 2 % - Romania and 1% Kazakhstan. The import of the apples is insignificant aw compared to the production and export and does not influence the market.

8 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators Plums 8 Figure 4. Evolution of foreign trade, production and market volume of plums in Moldova, tons Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Moldova The plum harvest in Moldova differs significantly from year to year without a clear tendency. The diagram above shows that in the period it varied between 14 and 54 thousand tons. The export has a slight increasing tendency. The internal market varies with significant amplitude. In the years when the production volume is higher, the purchase price of the plums from the producer is smaller and the processors resort to drying. When the harvest is small, the price is higher and drying does not work. The market of fresh consumption does not vary too much, the surplus of production is being processed. Figure 5. Export of plums in Moldova, Belarus 6% Russia 94% Source: UN Comtrade database 94% of the exported plums from the Republic of Moldova are delivered to Russia and 6% to Belarus. The import of plums is minor as compared with the production and the export and does not influence the market. Peaches and nectarines Figure 6. Evolution of foreign trade, production and market volume of peaches in Moldova, tons.

9 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Moldova Referring to peaches and nectarines, as it can be seen from the diagram above, all the indicators are increasing, including the production, export and the market volume, which exceeded 12 thousand tons in The market mainly is covered by the local production; whereas the imported fruit are usually re-exported to the Russian Federation and Belarus (see the diagram below). Ukraine accounts for only 1% of Moldovan exports of peaches. Figure 7. Export of peaches from Moldova, Figure 8. Import of peaches to Moldova in Macedoni Ukraine Rest of a 1% World 5% 3% Belarus 27% Russia 72% Greece 92% Source: UN Comtrade database Peaches are imported to Moldova mainly from Greece (92%) and some small amounts come from Macedonia and other countries Analysis of the fruit sector in Ukraine Apples Figure 9. Evolution of foreign trade, production and market volume of apples in Ukraine, tons Production Processed Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Ukraine

10 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators The apple production in Ukraine has a stable growth tendency throughout reaching 954 thousand tons in The export and import of apples is insignificant and has a decrease tendency. Lately in Ukraine many orchards were planted, thus it is expected that the export form this country will significantly increase in the near future 10

11 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators 11 Figure 10. Import of apples in Ukraine in Source: UN Comtrade database 98% of the exported apples from Ukraine go to Russia and 2% to Hungary (according to the data from 2011). Referring to the import, Poland is the main apples supplier to Ukraine with a quota of 86 % of the imports. Relatively insignificant quantities from 2% to 5% come from Italy, Netherlands and Spain. Plums Figure 11. Evolution of foreign trade, production and market volume of plums in Ukraine, tons [Producere Production, t.n.] [Volumul pieţei Market volume, t.n.] Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Ukraine The diagram above shows that the plum market in Ukraine almost 100% is covered by its own production. The market is stable and the external trade (both export and import) is low. Figure 12. Import of plums in Ukraine in Source: UN Comtrade database

12 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators % of the plum exports from Ukraine are delivered to Russia. The main supplier of plums to Ukraine is Spain (65% of the imports), being followed by Greece (22%) and Italy (5%). Peaches and nectarines Figure 13. Evolution of foreign trade, production and market volume of peaches in Ukraine, tons Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Ukraine As it is seen from the diagram above, the peach market in Ukraine is growing, reaching almost 80 thousand tons in It is important to mention that the market is increasing mainly due to the production growth. Presently, almost 40 % of the market volume is covered by the local production, the rest is imported. Figure 14. Import of peaches and nectarines from Ukraine in Source: UN Comtrade database Exports of peaches from Ukraine are almost null. Imports of peaches come mostly from Spain (48 % in 2011) and Greece (40. Suppliers with a smaller share are Italy (7%) and Turkey (4%).

13 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators Analysis of the fruit sector in Romania Apples Figure 15. Evolution of foreign trade, production and market volume of apples in Romania, tons Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Romania Apple production in Romania has increased throughout and reached the level of 620 thousand tons. The apple export has also had a growth tendency and in 2011 reached 46 thousand tons. It is obvious the fact that apple production in Romania has first of all, the aim of satisfying the domestic consumption. The imports in varied without a clear tendency and reached 43 thousand tons. Figure 16. Export of apples from Romania, Figure 17. Import of apples to Romania in Source: UN Comtrade database 84% of exported apples from Romania in 2011 were delivered to Hungary. The share of other countries, such as Bulgaria, Italy, Poland and Slovakia was between 2-7%. More than half of the apple imports were covered by Italy, being followed by Poland with 10% of the imports. Among other countries supplying apples to Romania in 2011 were Moldova (7%), Hungary, Austria, Slovenia, Germany and the Netherlands. It should be mentioned that in 2011 Moldova was the only supplier of apples to Romania from outside the EU.

14 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators 14 Plums Figure 18. Evolution of foreign trade, production and market volume of plums in Romania, tons Production Export Import Market Volume Source: UN Comtrade database, FAOSTAT, official statistical authorities of Romania Romania is among the world leaders in terms of producing plums, which in 2011 recorded the volume of 574 thousand tons. Exports and imports are insignificant and do not affect any way the internal market tendencies. Figure 19. Export of plums from Romania, Figure 20. Import of plums to Romania in Source: UN Comtrade database Exports of plums from Romania are mostly intended for Russia (42%), Austria (26%) and Finland (12%). Among the countries that import plus from Romania, there is also the Republic of Moldova with the export share of (4%) in There are also plums imported to Romania from Greece (33%), Serbia (16%), Hungary (9%) and Netherlands (9%). Peaches and nectarines Figure 21. Evolution of foreign trade, production and market volume of peaches in Romania, tons Production Export Import Market Volume

15 Chapter I: Analysis of Fruit Production and Foreign Trade Indicators 15 Source: UN Comtrade database, FAOSTAT, official statistical authorities of Romania The market volume of peaches in Romania decreases throughout and partially recovers its positions in 2011, reaching 37 thousand tons. In some years the local production prevails on the market, whereas in others the import production is sold more. The export of peaches are insignificant (850 tons in 2011) and intended mostly for Hungary. Figure 22. Export of peaches and nectarines from Romania, Figure 23. Import of peaches and nectarines to Romania in Source: UN Comtrade database The main countries supplying peaches to Romania are Italy (45% in 2011) and Greece (38%) ANALYSIS OF FRUIT TRADE IN THE REGION The table below provides data referring to the share of the countries from the region in the bilateral export and import of the studied fruits (apples, plums and peaches). Table 1. Matrix of the importance of the bilateral trade in fruits (apples, plums and peaches) between Moldova, Ukraine and Romania Indicators Moldova - Ukraine Moldova Romania Ukraine - Romania % in exports from country 1 to country % 1.35% 0% % in imports to country 2 from country 1 0.1% 4.95% 0% % in exports from country 2 to country 1 0% 0.3% 0% % in imports to country 1 from country 2 0% 0.85% 0% As it can be seen from the table above, Moldova, Ukraine and Romania, even being neighbouring countries are not active in the bilateral fruit trade. Only 0.07 % of the fruit exports from Moldova are intended for Ukraine and 1.35 %, respectively Romania. Imports from Moldova constitute 0.1 % of all the fruit imports to Ukraine and 4.95% of all the imports of the studied fruit from Romania. Only 0.3 % from the fruit exports of Romania are intended for Moldova, which represent just 0.85 % of all the imports of delivered fruit to Moldova. The fruit trade between Ukraine and Romania equals to zero as well as the export of fruit from Ukraine to Moldova. The given analysis was presented for a simpler viewing of the (very small) involvement level of the countries from the region in the bilateral fruit trade.

16 Chapter II: Analysis of Competitiveness and Distribution CHAPTER II: ANALYSIS OF COMPETITIVENESS AND DISTRIBUTION ANALYSIS OF COMPETITIVENESS Porter s 5 forces analysis In order to analyse the competitiveness in the production and trade sector of fresh fruit and vegetables in the three countries subject to research, we have applied Porter s five forces analysis (see the diagram below). This tool allows for identification and establishment of several factors which influence the level of competitiveness on the market. Figure 24. Porter s five forces analysis for the sector of fresh fruit and vegetables in the region Analysing the information presented in the diagram above, we may conclude that the competition on the market is moderate, without major inclining towards the consumer or the supplier. The number of suppliers is rather large. Those who have a well-organized distribution have a certain advantage compared to other

17 Chapter II: Analysis of Competitiveness and Distribution 17 suppliers, but there are few such suppliers and they cannot monopolize the whole distribution of fresh fruit and vegetables. On the other hand, corporate consumers are also quite fragmented and do not have too much of a bargaining power against their suppliers. An exception are the modern retail networks, which have a stronger bargaining power, but have not yet monopolized the market in any of the countries in the region subject to research. The list of brand products in the field of fruit and vegetables strengthens the positions of the buyer, who can switch to other suppliers easier. The risk of new entrant suppliers on the market is moderate. Starting a business of producing fruit requires long-term investments in multi-annual plantations, while production of vegetables allows for more flexibility and is easier to launch. The imported production is subject to customs duties (if no free trade agreement is signed between the countries), which represents a barrier for the new suppliers on the market. Fruit and vegetables do not have substitute products. Nonetheless, it is noteworthy the fact that there is a tendency, that once the income of the population is decreasing, the consumer will migrate from expensive products to cheaper ones, from exotic fruits to local fruits, or from fruit to vegetables, which usually are cheaper. The competitive matrix Below we shall use the Competitive matrix tool in order to analyse which country in the region is more competitive in regards to export of fresh fruits and what are the main factors influencing thereupon. Table 2. The Competitive matrix for fruits in the region (1 min., 7 max.) Indicator: Moldova Ukraine Romania Quality Price Increase of fruit exports Concentration of supply Post-harvesting infrastructure Tariff barriers Total average points The results of the interviews of the market players show that the average quality indicator of the fruit from all three countries is similar. Analysing the price evolution from the producers in the last 5 years for the three studied fruit, the conclusion was reached that the prices in Moldova and Ukraine were relatively similar, whereas in Romania the price was almost double. The average annual share (of the value) of the export growth of fruit from Moldova throughout was of 21%, whereas in Romania 21% and Ukraine 12% respectively. In Romania and Ukraine there are several large fruit producers, which means that there is the possibility of consolidating the necessary volumes for the export, whereas in Moldova the production is more fragmented. The post-harvest infrastructure is approximately at the same level in all three countries. From the point of view of tariff barriers, Moldova has most advantages compared to the other countries, due to the fact that it has the free trade agreement and may export free of customs duties to EU (including to Romania) and Ukraine. Ukraine may export products to Moldova tax free; however the Ukrainian products are subject to tax when they are exported to Romania. Romanian fruit is subject to taxation both in Moldova and in Ukraine upon import. By analysing the average score of the factors of the comparative analysis, we can establish that Moldova has the best score in terms of the competitiveness in the fruit export from all three studied countries SYSTEM OF DISTRIBUTION OF FRESH FRUIT AND VEGETABLES The main distribution channels in all those three countries researched are: Retail agricultural markets Wholesale markets

18 Chapter II: Analysis of Competitiveness and Distribution Traditional retail Modern retail (retail networks) HoReCa Public procurements From the channels listed above, in all those three countries the main distribution channels are agricultural retail markets and retail. The basic trend of the market is the sudden increase of retail networks of all types (supermarkets, discount stores, hypermarkets, Cash & Carry) within the frame of traditional retail. Following various estimations, currently the quota of the modern retail in the trade with fruit and vegetables in Moldova and Ukraine is within the limits of 10-15%, whereas the annual increase of total sales by means of retail networks is approximately 10%. In Romania, almost 50% of the fruit and vegetables are sold through modern retail, although the quota of the last retail in the total sales of industrial goods in Romania constituted around 92%. All the three countries subject to research are agricultural countries, therefore retail (or wholesale) agricultural markets shall remain an important channel for trade in fruit and vegetables. For some small producers the agricultural market is a primary or even the only possibility to sell their own production. It is noteworthy that wholesale market sales in Ukraine and Moldova are relatively stable. In Ukraine even new wholesale markets are being opened. Often wholesale markets in Moldova and Ukraine are the place where retail networks purchase significant amounts of fruit and vegetables. On the opposite side, wholesale markets in Romania disappear as a separate business and remain, for the most part, to be an additional business of large dealers/importers who deliver the majority of products to retail networks. Importers/dealers usually work with a 20-30% gross profit. In Romania, for instance, such big profit is necessary in order to compensate the distributor for the high cost of marketing of retail networks, which include all types of payments imposed on the supplier (retroactive payment of bonuses from turnover, payment for entry in store, payment for shelves, etc.). Currently, in Moldova, retail networks do not have such bargaining power in negotiations with fresh fruit and vegetables suppliers due to the fact that this distribution channel is still narrow. The profit of retail stores is usually within the limits of 20-30% REQUIREMENTS OF THE BUYER REGARDING PRODUCTS AND SUPPLIERS The requirements of buyers towards the suppliers and products are similar in Ukraine and Romania. The more the distribution channel through retail networks is developing, the higher the requirements of the buyers towards the appearance of the products are. One of the requirements is calibration of the product. As an example, below are some requirements of buyers towards calibration: Apples: mm. Two importers from Ukraine mentioned that they prefer working with a high caliber. Peaches: up to 80 mm There is no calibration for plums Some buyers in Romania mentioned that they consider the quality of products from Moldova to be better than of Romanian ones, however the packaging is lower in quality, which hinders the competitiveness of Moldovan products, because the end user buys the product by the eye. Thus, the appearance is very important. The packaging must protect the product against low temperatures and mechanical damages. Cardboard and wood, seldom plastic, is used for packaging. The supplier has a free choice of wrapping if it meets the requirements stipulated above. Very often cabbage is delivered in 25 kg bags. For example, the ideal packing for the apples would be an open cardboard box with the dimensions of 600x400x160 mm, however the wooden package is also accepted. An importer from Ukraine mentioned that the palettes should be used for the goods. The consumer usually does not know the varieties of the fruit; that is why the distributors do not emphasize certain varieties of fruit. Some exceptions are such varieties as Golden Delicious, Semirenco, Granny Smith and Champion for the apples and Anui for the plums (in Romania). 18

19 Chapter II: Analysis of Competitiveness and Distribution As a rule, importers from Ukraine and Romania ask their suppliers to postpone payment up to days. Only for some strategic products sold in large quantities, such as bananas and potatoes, the buyers may pay in advance, provided that the price of the producer is a good one. An importer from Ukraine mentioned that he is checking the goods when they arrive in the port and have not undergone customs clearance yet. Eventually, he clears it and pays for it only if satisfied with the quality. The supplier must undertake responsibility to ensure shipping of the products to the buyer. Delivery must be done within 2-3 days at the most from the date of the order. Some importers from Romania mentioned among their requirements that the external producer must be GlobalGAP certified. At the moment the requirement hereto is not obligatory for all importers, but the trend is that the respective certificate gains popularity. Buyers from Romania, having a joint market with the European Union, often prefer to order mixed deliveries of various vegetable products from EU wholesale markets, which is more difficult for the Moldovan producers to organize, who usually have a very narrow specialization. It is interesting that importers very often do not know the legal requirements towards the vegetal products imposed by their states. For instance, importers in Romania are used to a standardized quality of European products and rarely does it happen that an importer consults regulatory documents to identify if the goods delivered meet or not the standards imposed by the legislation. Products from Moldova are rarely found on Ukrainian and Romanian markets, although during the interview with the market operators a Romanian wholesale dealer claimed that periodically he works with apples and grapes from Moldova. Some Ukrainian importers confirmed that they work with products from Moldova, but to have a good quality, one needs to personally come to Moldova and choose the product SEASONALITY OF SALES AND PRICES All three countries researched are important producers of fruit and vegetables in the region. This means that their market is not subject to major price waves and fluctuations in the quantities sold. For the majority of fruit and vegetables the high time of production is the summer season, primarily during July August. During this period, the fruit and vegetables in the region are practically not imported, the local production exclusively being consumed in large quantities and at reduced prices. Importers are not active in this time of year, because the consumer prefers local products at a reduced price, despite the fact that the appearance of the local product is lower in quality compared to the imported one. Generally, it is typical of many markets, including for the three markets studied, that namely the consumer always has a very high tolerance towards the quality of local fruit and vegetables, whereas the imported product must be of an impeccable condition. When the local production is exhausted, the importers are becoming more active. All three countries have limited capacities of cold storing. That is why, except the season time, the imported fruit are abundantly present. This is less characteristic for apples, but it is effective for other types of fruit. If the price of the apples extra season increase with 30-70% (depending on the year), then the price of the peaches grows with %. The price of the plums increases only at the end of the production season up to %. As concerns the season sales, the interviews with the market operators have shown that the apples are sold almost throughout the year, with maximum sold volumes from August to December, and the sales volumes decreases almost three times after the New Year. Peaches and plums are sold just in their production season, which is in July-September. Sometimes there can be found plums for sale in the winter months, which are imported from the south hemisphere, but they are sold in extremely small quantities just for the enrichment of the assortment and are not a market indicator.

20 Chapter III: Regulation on Fresh Fruit Exports in the Region 20 CHAPTER III: REGULATION OF FRESH FRUIT EXPORTS IN THE REGION 3.1. PROCEDURE OF EXPORTING FRUITS FROM THE REPUBLIC OF MOLDOVA TO ROMANIA AND UKRAINE Operations prior to customs clearance 1. Registration of the exporter with the customs authority a) Legal framework: 1. Customs Code no from Law on customs tariff no from Customs Service Order no. 276-O from On preparing customs documents for customs clearance of goods originating from foreign economic transactions. b) Documents required to be submitted to the customs authority (submitted in original). - request for registration is submitted to the customs authority where the economic operator is headquartered and shall conduct the customs clearance of goods. It is filled out free style. - charter of the economic operator (registration certificate, statute/founding decision, Articles of Incorporation, SIRUES code registration certificate, tax registration certificate, VAT registration certificate, acts/ orders, protocols, etc./ on appointment of the head of the company and of the chief accountant); (these documents shall be submitted to the customs authority only when performing the first transaction, except for cases when amendments to such acts occur). - certificates confirming bank accounts; - documents issued by economic operators, which confirm their sample stamps; - documents issued by economic operators, which confirm the sample signatures of persons with the right to act on behalf of the company without additional mandates; - the power of attorney issued to the person who shall declare the goods to the customs authority on behalf of the economic operator; - identity documents (passport or identity card) of the person who shall declare the goods to the customs authority on behalf of the economic operator. 2. Preparing and submitting to the customs authority documents related to the goods a) Legal framework 1. Customs Code no from Law on customs tariff no from Customs Service Order no. 276-O from On preparing customs documents for customs clearance of goods originating from foreign economic transactions. b) Documents required to be submitted to the customs authority - the contract based on which goods shall be delivered, i.e. the export-import contract the original shall be submitted, legalized with the stamps and signatures of the persons in charge of the Exporter and Importer, as well as a copy of the contract thereof to be presented to the customs authority. - commercial documents official documents which contain information regarding the cost of goods due to be exported, with specification of the goods thereof. Commercial invoices, pro-forma invoices, as well as other documents used in foreign trade (are submitted either in Russian, or in Romanian languages), may be used as commercial documents. In the case of export without having an export-import contract, for instance for exports by individual producers, usually within the customs authority at the border a non-contractual goods delivery invoice (customs invoice) is filled out. - documents which confirm the goods had been weighed, where their overall quantity is indicated. 3. Preparing and submitting to the customs authority documents related to the transport of goods a) Legal framework 1. Parliament Decision no from on adherence of the Republic of Moldova to some international Conventions adherence to the Customs Convention on the International Transport of Goods under Cover of T.I.R. Carnets (14 November 1975, Geneva) and to the Convention on the Contract for the International Carriage of Goods by Road (CMR) (Geneva, 19 May 1956).

21 Chapter III: Regulation on Fresh Fruit Exports in the Region Government Decision no. 501 from regarding measures to carry out provisions of the Customs Convention on the International Transport of Goods under Cover of T.I.R. Carnets (T.I.R. Convention, 1975). 3. Government Decision no from on approval of the Regulation regarding the way of applying the Customs Convention on the International Transport of Goods under Cover of T.I.R. Carnets (T.I.R. Convention, 1975). 4. Government Decision no. 539 from On creation of the Public institution National Road Transport Agency. b) Documents required to be submitted to the customs authority - control of documents and technical condition of the vehicle and trailer this procedure may cause rather complicated problems, especially when the export is done with own transportation means or lorries managed and accompanied by the representative of the Exporter. For instance, the missing registration number of the trailer in one or several documents regarding the goods or transportation will make impossible the legal crossing of the state border. In this case, the CEMT Certificate is issued for conditions of the technical check of vehicles: if the trailer/semi-trailer meets the technical security requirements. The document is issued free of charge within one day based on the examination reports issued by the vehicle inspection services, pursuant to provisions of point 7 sub point 12 of the Government Decision no. 539 from 23 April transport documents official documents which accompany the cargo and contain information regarding conditions and nature of movement, as well as the basic typical traits of the transported goods. Upon movement by road, the following shall be submitted: - the international waybill (CMR), foreseen by the Convention on the Contract for the International Carriage of Goods by Road (CMR) (Geneva, 19 May 1956), and submits proof of contract concluded for international transport of goods by road and of receipt of the goods by the carrier. The CMR is filled out in three original copies, legalized by signature and/or stamps by the consigner and by the carrier. The three CMR copies have the following destinations: the first copy to be used by the consigner, the second copy to accompany the cargo, and the third copy to be used by the carrier. - TIR Carnet (provided for by the Convention on the International Transport of Goods under Cover of T.I.R. Carnets (Geneva, ), a document with declarative customs value which guarantees payment of customs duties on goods transported under TIR regime up to an amount of USD , as well as payment of eventual fines for violation of customs regulations and delay penalties. The use of TIR carnet allows for facilitation of the state border crossing by the Exporter and the Importer, and, depending on the case, - entering the territory of transit countries. For vehicles which have TIR carnet, payment of customs duties and thorough checks of goods are done within the internal customs authority, not at the border, which reduces financial costs and time necessary to enter the territory of the importer s country. This provision is ever so important in the case of fresh fruit and vegetables, due to the fact that opening the trailer at the border may cause change in the thermal storage regime of vegetables and may reduce their storage life. According to the Government Decision no. 501 from , in the Republic of Moldova, the guarantor association which also ensures carriers with TIR Carnet templates is the Union of International Road Transport from Moldova - AITA. Upon movement by rail, the following shall be submitted: - the waybill foreseen by the International Agreement on International Transport of Goods by Rail (entered into force on ). Important: According to the Protocol between the Customs Department of the Republic of Moldova and the State Customs Service of Ukraine on mutual recognition of waybills, commercial and customs documents and customs assurances, art. 2 The contracting parties shall mutually recognize transport, commercial and customs documents, customs seals, the print of seals and stamps and of official signs on the means of transportation, cargo, luggage and post mail. 4. Preparing and submitting to the customs authority the certificate of origin this document is also issued by the customs authority, prior to the export procedure, and shall be submitted to the customs authority during the procedure prior to the customs clearance. For Romania, like for the rest of EU member states EUR.1 movement certificate justifying document whereby it confirms the country of origin of the goods exported to European Union states within the frame of Autonomous Trade Preferences (ATP). a.1) Legal framework 1. Council Regulation (EC) no. 55/2008 of 21 January 2008 introducing autonomous trade preferences for the Republic of Moldova and amending Regulation (EC) no. 980/2005 and Commission Decision 2005/924/EC. 2. General Agreement on Tariffs and Trade (GATT) of , entered into force on Law on customs tariff no. 1380/

22 Chapter III: Regulation on Fresh Fruit Exports in the Region Government Decision no. 909 of on approval of the Action Plan for handing over competencies of certification of the origin of goods from the Chamber of Commerce and Industry to the Customs Service. 5. Government Decision no from on the rules of origin of goods. 6. Customs Service Order on the approval of the Regulation for completing, authenticating and issuing of certificates of origin for goods exported from the Republic of Moldova within the frame of preferential trade regimes with the European Union (ATP) and with the states which grant the Republic of Moldova the Generalized System of Preferences (GSP) no. 50-O of For Ukraine preferential certificate of origin upon export, CT-1 form. a.2) Legal framework 1. The Agreement on Creation of Free Trade Zones within the Commonwealth of Independent States (CIS) signed in Moscow on 15 April 1994, ratified by the Decision of the Parliament of the Republic of Moldova no. 220-XIII of 22 September 1994 (By Law no. 201 of the Agreement on the Free Trade Zone was ratified, through which the Agreement of 15 April 1994 shall terminate its action, however our state shall conduct necessary internal procedures in view of its entering into force). 2. Rules for determining the country of origin of goods approved by Decision of the Council of the Heads of Governments from the Commonwealth of Independent States (CIS) of 30 November Law on customs tariff no. 1380/ Government Decision no. 909 of on approval of the Action Plan for handing over competencies of certification of the origin of goods from the Chamber of Commerce and Industry to the Customs Service. 5. Government Decision on the rules of origin of goods no of Customs Service Order on the approval of the Regulation for completing, authenticating and issuing of CT-1 Form certificates of origin for goods exported from the Republic of Moldova within the frame of free trade regimes with the member states to the Agreement on Creation of Free Trade Zones within the Commonwealth of Independent States (CIS) no. 331-O of b) Requirements and procedures: Form EUR.1 certificate of origin of goods is issued exclusively for goods originating in the Republic of Moldova on condition of their direct transportation to European Union states (in this particular case to Romania). The CT-1 Form certificate of origin of goods is a justifying document which shall be issued only in case the goods due to be exported may be considered products originating in the Republic of Moldova and only upon their direct transportation to one of the member states of the Agreement on Creation of the Free Trade Zone within the Commonwealth of Independent States (in this particular case to Ukraine). The cost for issuance of the template certificate for filling out is EUR 6. Customs authorities authenticate the certificate of origin of goods and issue it to the exporter or its representative when the goods referred to are exported. For authentication of the EUR.1/ CT-1 certificate, the request form-declaration shall be submitted to the issuing customs authority (Customs House in whose area of responsibility the exporter is headquartered) in the form provided in Annex no. 4 to the Customs Service Order no. 50-O of (for CT-1) or the form in Annex no. 3 to Customs Service Order no. 331-O of for EUR.1. The following shall be attached to the request: a) Articles of incorporation of the exporter (registration certificate, statute, founding decision, Articles of Incorporation, SIRUES code registration certificate, orders/protocols on appointment of the head of the exporting company and of the chief accountant). Copies of the respective documents are submitted, legalized in line with the procedure in force, including sealing with the wet stamp and signature of the exporter. At the same time, the sample stamp of the exporter and signatures of the head, chief accountant and representative of the exporter shall be presented (original). The documents hereby shall be submitted to the respective customs house only upon request of the first certificate of origin (except for amendments to such documents, in which situation the exporter shall be responsible for submittal to the customs authority of the respective amendments confirmed with documents, and, at the same time, shall be responsible for the effects entailed in relation to the nominated amendments not being submitted); b) Identity documents of the natural person exporter or representative of the exporter (legalized copy bearing the signature of the person); c) Export Contract (copy authenticated by stamp and signature of the exporter); d) Commercial documents: commercial invoices, pro-forma invoices, invoice, as well as other documents used in foreign trade (copy authenticated by stamp and signature of the exporter); e) The power of attorney issued to the representative of the exporter, which grants the power to submit to the customs authority declarations, documents, data and information necessary to confirm the origin of goods, as