FOOD SYSTEMS RESTRUCTURING PROJECT

TERMINATION REPORT

December 1995

Submitted to: United States Agency for International Development

NIS/TF/PSI Project Number 110-0006 Cooperative Agreement Number CCN-006-A-00-3038-00

by:

TRI VALLEY GROWERS

101 California StreetP.O. Box 7114

San Francisco, California 94120-7114

Table of Contents

I. EXECUTIVE SUMMARY OF ACCOMPLISHMENTS

A. BackgroundB. ObjectivesC. Results

II. ACTIVITIES

A. FSRP projectB. Field officeC. Headquarters

III. RECOMMENDATIONS

IV. FINANCIAL INFORMATION

A. Management and administration B. Subagreement reimbursements

V. APPENDICES

A. Report - Republic of Moldova, Fruit And Vegetable Industry - byTVG FSRP Moldova staff (Karen Potter, editor)

B. Report - Introductory Interviews with Technical AssistanceCandidates - by Michael Christenson

C. Report - Technical Assistance to the Air Budzhak Company - byMichael Christenson

D. Report - Marketing Planning for Agribusiness Training CourseReview - by Michael Christenson

E. Marketing Seminar Course Materials F. DTR reports G. Chalice Investments report H. Petoseed report

This report is submitted in accordance with the requirements of a Final Report as specified in Section E.2.(e) of the US AID Cooperative Agreement with Tri Valley Growers (TVG). It covers activities from the inception of the project with an emphasis on the final six month period from July 1 through December 15, 1995, the scheduled TVG Cooperative Agreement termination date.

I. EXECUTIVE SUMMARY OF ACCOMPLISHMENTS

A. BACKGROUND

Through the Food Systems Restructuring Project (FSRT), TVG (in association with the American Seed Trade Association and the National Potato Promotion Board) proposed to directly engage U.S. agribusinesses as investors, joint-venture partners and advisors to strengthen private-sector agriculture in the NIS. These activities would speed the privatization of state-owned enterprises and support the emerging private companies. Technical assistance would accompany U.S. investments to strengthen NIS management and technical capabilities. The focus was to improve food processing, storage, marketing and distribution.

The initial implementation of the FSRP began in February 1993. Field offices were established in Moscow, Russia, and Chisinau, Moldova. Initial steps were taken to establish an office in Khabarovsk, in the Russian Far East; however, subsequent evaluation of the area led to a decision to manage that region from the home office. A project development specialist was hired to market the program in the U.S. and assist applicants in preparing applications.

TVG conducted investment and trade surveys in Moldova, Kazakhstan, and the Russian Far East. Pre-feasibility analyses were prepared by the field staff and were presented to potential U.S. agribusinesses. TVG's initial approach involved the identification of NIS agribusinesses suitable for consideration of U.S. investment, and contacting U.S. businesses to generate interest in investing in the NIS. USAID support would not be provided until the joint venture was established and sufficient private investment (a ratio of 2.5 dollars for every dollar provided by USAID) was committed.

Early indications were that U.S. companies were eager to seek out investment opportunities that would allow them to expand their operations to the NIS. However, this early interest began to wane, and negative publicity related to the business climate in the NIS, began to discourage investment. In mid-1993, with USAID approval and in an effort to get more U.S. companies involved, TVG opened up eligibility for participation in the program to all U.S. businesses. Also, as less emphasis was placed on identifying potential NIS partners, more emphasis was placed on working with U.S. businesses considering, or already involved in establishing business relationships in the NIS. These efforts resulted in the submission of more proposals to USAID, as well as increased visibility of the program.

During the first two years of implementation of the FSRP, a total of 14 applications for participation in the FSRP were submitted. Of these 14, four were approved, representing six separate joint ventures. The first project approved was submitted by Petoseed of Saticoy, California. This project included three separate joint ventures established by Petoseed in Ukraine, Russia, and Moldova. Three additional projects were approved, resulting in a total of six active joint ventures in the NIS by the end of 1994. One new venture was approved in 1995. Approved projects include the production and marketing of hybrid vegetable seeds,

1

dehydrated potato flakes, wine, dairy products and juice concentrate. Of these six, one (CTC Foods) has presently ceased activity due to bankruptcy of its principal investor. FSRP support was terminated due to the failure to raise additional capital to carry on project ,. activities. Additionally, Big Sky Foods has yet to fulfill its capitalization requirements

\FSRP projects represent a total investment of approximately $13.0 million, of which US AID is to provide 3>3.3 million.

As of December 15, 1995, the following projects had been approved for participation.

U.S. Company: Petoseed Company Inc. Saticoy, CA

Project(s) Location: UkraineRussian Federation Moldova

Purpose of Venture: Produce, process and market hybrid vegetable seed

U.S. Company:

Project Location:

Purpose of Venture:

CTC Foods, Inc. Englewood, CO

Russian Federation

Provide storage for fresh potatoes. Manufacture and market flaked potatoes

U.S. Company:

Project Location:

Purpose of Venture:

Chalice Investments, Inc. San Francisco, CA

Republic of Georgia

Improve quality of wine currently produced. Develop marketing programs for markets in NIS

U.S. Company:

Project Location:

Purpose of Venture:

Developed Technology Resource, Inc. Minnetonka, MN

Kazakhstan

Produce yogurt and other dairy products. Develop marketing programs for markets in NIS

U.S. Company:

Project Location:

Purpose of Venture:

Big Sky Foods Trading, Inc . Great Falls, MT

St. Petersburg, Russia

Process cranberries and other wild berries to produce fruit juice concentrate and other processed products for thterNIS market.

In December 1994, TVG proposed a two-year expanded program of technical assistance and training to assist in restructuring the food systems in Moldova. This program sought to increase the food availability and rural incomes through strengthening the emerging private agribusinesses and farmers associations. The program would focus on post-harvest activities in processing and marketing, improved management and financial systems, and assistance to the Moldovan firms that have the capacity to achieve investments from private and public sources of finance. The proposal was accepted and implemented. Expected outputs are:

* Strengthen 50 Moldovan private agribusinesses;

* Create linkages with 25 western firms; and

* Of the 50 agribusiness, assist 10 private farmers' associations with technical assistance.

In September 1995, TVG's management decided to terminate this contract, as well as to discontinue its involvement with U.S. Government-supported international assistance efforts. AID accepted TVG's decision and prepared the necessary Request for Proposals to hire other firms to complete the project. The Agriculture Cooperative Development International (ACDI) was asked to bid on the Kazhkastan and Georgia activities, and Citizen Network for Foreign Affairs (CNFA) to bid on the Moldova activity. Their proposals are currently being evaluated.

B. OBJECTIVES

Activities under the FSRP were designed to speed the privatization of state-owned enterprises and support emerging private companies. The technical assistance, which accompanies U.S. investments, is expected to strengthen NIS management and technical capabilities. TVG's activities would focus on improving food processing, storage, marketing, and distribution.

These activities would impact the local economies by providing jobs, income, improved working conditions, arid"better consumer products. The objectives of the approved activities, based on the local impacts, are listed in Table 1.

C. RESULTS

The actual private and A.I.D. investments to date are listed in Table 1:

TABLE 1. US AID INVESTMENT RATIO

Subagreement

Petoseed

CTC Foods

Chalice Investments

DTR

TOTAL

USAID Funds reimbursed as of 10/31/95

$339,137

$428,249

$289,047

$231,066

$1,287,499

U.S. Partner Investment as of 10/31/95

$729,593

$1,624,789

$732,000

$445,844

$3,532,226

Actual Leverage Ratio

2.15 : 1

3.79 : 1

2.53 : 1

1.93 : 1

2.74 : 1

TVG has also been working closely with financial institutions and venture capital firms to assist NIS and western companies to obtain financing for their projects. TVG collaborates regularly with the World Bank and EBRD, and has held initial discussions with the West NIS Enterprise fund. Two entrepreneurial organizations in Moldova have successfully obtained funding from the Eurasia Foundation for a total of approximately $80,000 to follow-up on previous training in business planning provided by TVG. TVG has also introduced DTR to a Moldovan dairy, Incomlac, which resulted in a new joint-venture proposal, which is currently being submitted to USAID for consideration for FSRP funding.

Progress to date on the objectives is given in Table 2.

TABLE 2. STATUS OF OBJECTIVES

Business Partnership

1. Petoseed, Inc. (Russia, Ukraine, and Moldova)

2. CTC Foods Inc. (Russia)

3. Chalice Investments Inc.

(Georgia)

4. Developed Technology Resource, Inc. (Kazakhstan)

5. Big Sky Food Trading (Russia)

Local Impact Firm and People Level Indicators

1.1. Increased availability of low-cost, high-quality vegetable seed.

1.2. Increased volume, reduced unit costs. 1.3. New jobs created 1.4 Improved labor practices 1.5. Increase in yield per hectare from

hybrid seed produced by J.V.

2.1. Increased availability of shelf-stable high-quality processed food.

2.2. Improved market for local potato producers.

2.3. New jobs created. 2.4. Improved labor practices. 2.5. Improved technical and management

skills.

3.1. Increased availability of quality wines in local and regional markets.

3.2. Improved technical and management skills.

3.3. New jobs created. 3.4. Improved labor practices.

1 . Increased availability of high-quality dairy products.

2. New jobs created. 3. Improved labor practices. 4. Improved technical and management

skills.

5.1. Increased availability of quality juices in local markets.

5.2. Improved technical and management skills.

5.3. New jobs created.

Status as of December 1995

1.1 Tomato seeds available in Moldova and Russia

1.2 $10 million worth of sales 1.3 Jobs created in Moldova 1 .4 Labor negotiation

successful in Moldova 1.5 Tomato seed

yields increased

Agreement terminated

3.1 Production capability increased to 160,000 bottles per month. Sales to Russia of 50,000/mo. and to East Europe of $40,000 /mo.

3.2 Training conducted and new procedures were implemented.

3.3 185 jobs created.

4.1 Yoguit and kefir now available in market.

4.2 New jobs created. 4.3 4.4 New technical and

management skills being used.

No AID funds advanced.

All existing FSRP projects are monitored quarterly. An environmental checklist was developed and incorporated into the on-site inspection evaluation format.

All of the joint ventures (JV) have provided training for the NIS staff and management, both on-site, and often at U.S. facilities. The joint ventures have U.S. management and industry experts on-site to supervise production and processing. Marketing and distribution are also coordinated carefully with the U.S. partners. In all of the ventures, new equipment has been brought in, which resulted in transfer of technology and improved production and processing methods. The product generated has resulted in increased incomes and stable employment for the local population.

IT ATTIVITIF.S________________________________________________________

A. FSRP PROJECT ACTIVITIES

1. Petoseed

The negotiations for this JV, which extracts, processes and markets vegetable seed, were concluded in November 1992. The first year of operation of its joint ventures in Moldova, Ukraine, and Russia provided the company with a good start in the NIS. Management concluded, after evaluating the overall performance of the three ventures during this first year, that the best operating results were achieved when processing equipment was supplied by Petoseed, rather than by its NIS partners. Russian-manufactured seed extraction equipment was used in both the Russian and Ukraine ventures, but resulted in excessive damage to the seed. Thus, the decision was made to replace the Russian-manufactured seed extraction equipment, as used in Ukraine and Russia, with new equipment manufactured in the west. This new equipment eliminated the seed damage problems experienced in 1993. In addition, a second seed cleaning line will be added to the Moldovan JV, where the quality of seed produced during 1993 was very high. One hundred percent of the production was usable and was successfully marketed.

During the first year of operations in 1993, many problem areas were, encountered, but were corrected during 1994. According to Petoseed's management, with the exception of venture located in Ukraine, both the level of seed production and quality of seed produced in 1994 were significantly higher than those achieved in 1993. Although currently only tomato seed is being produced, the JV plans to expand its product mix in the future to eventually include other types of vegetable seed.

During 1994, the Russian and Moldovan joint ventures performed very well. Because of the problems relating to both product quality and quantity experienced in the Ukraine joint venture, it was decided to relocate this facility for the 1995 production season. The new location will be in Russia, approximately 20 miles from Krasnodar. Petoseed's management has made arrangements with a farming enterprise, a joint stock company, that operates and controls approximately 32,000 acres. The farm also has a tomato processing facility, a

slaughter plant, and a jam canning facility to process the commodities it produces. The manager of the farm has visited California as a guest of Petoseed.

The seed processing equipment located at the Moldova facility was moved approximately 40 miles to a new location in 1995. The move follows the change in location for growing most of the tomatoes for seed production.

Petoseed's long-term commitment to investing in the NIS has been a catalyst for expanded sales of a wide variety of high-quality vegetable seed throughout the NIS resulting in total sales of approximately $10 million in 1994.

In Georgia, Petoseed 's harvest began in August and continued through September. The seeds were extracted, washed, dried and packaged in bulk in Moldova. The bulk seed was then shipped back to Petoseed's operations in the U.S. for final processing.

Two of the three joint ventures are performing in accordance with the established business plans and planned investment over the next three years is expected to continue.

2. CTC Foods

CTC Foods, Inc. (CTC) is a privately-owned Colorado corporation located in Denver, which has been participating in the FSRP since May 1994. It proposed to establish a potato processing plant at Pushchino, Russia. Most of the 1994 activities revolved around securing the permits and licenses needed to begin construction of the storage and processing facility. All the needed permits were obtained and construction began in 1995. Manufacturing and testing the potato processing line was started, and virtually all the engineering drawings were completed.

In 1995, CTC experienced financial problems as a result of the personal bankruptcy of its owner. CTC, however, has not filed for bankruptcy and continues to operate without court intervention. The owner of CTC was providing a significant portion of the capital required to support CTC's investment in this joint venture. His bankruptcy filing has precluded him from providing investment capital to CTC. Construction of the potato processing facility at Pushchino has been halted. Since becoming aware of this problem, TVG has remained in close contact with the President of CTC, who is currently seeking other sources of funding in order to continue with this project. The Russian partner remains fully committed to this project and is anxious to resume construction.

In July 1995, a letter was sent to CTC Foods serving as notice of termination in case of failure to respond in a timely manner. In October, CTC was notified that their subagreement was terminated due to the apparent inability to secure needed financing.

3. Chalice Investments

Chalice Wines was formed by integrating Wente Brothers winery, Diomedes Inc. through an equity participation with Sameba and Tsinandali wineries in Georgia. The joint venture was established to upgrade existing wine bottling facilities in Georgia with American technology and equipment, training the Georgian winemakers and distributors to improve and expand the existing MIS market for wines.

Chalice Investments joint venture has been implemented, bringing modern wine making technology to Georgia. American equipment is used in processing and bottling, and local staff have been trained in viticulture, enology, and management. The JV is operating and continues to make progress. Wine has been sold to NIS markets, and marketing activities are currently focused on expanding distribution channels in the Russian Federation, particularly Moscow and St. Petersburg. Transportation has been somewhat disrupted due to the problems in Chechnya. Initially, cash flow difficulties and subsequent sourcing problems have hindered the purchase of bottles, although a new source has been identified in Bulgaria. A new CEO was hired, and he moved to Georgia where he will reside for the next two years.

Two new sales contracts have been signed. One contract is for delivery of 50,000 bottles of wine per month to Russia which began in September 1995. The other contract is for the delivery of 40,000 bottles of wine per month to a broker in Western Europe. The production level of wine is increasing every month to meet the demand.

The JV is close to having a positive cash flow.

Senior management of Chalice Investments have also been active in other business activities within Georgia. For the last two years they have invited Georgian management trainees to the U.S. for two months of intensive training at U.S. universities and businesses.

4. DTR

The joint venture agreements were executed between DTR and Ak Bulak for the processing of dairy products in Kazakhstan. In their proposal, they discussed launching yogurt and chocolate milk simultaneously, but additional market studies conducted afterward, changed their initial approach. They remain confident that there is a high demand for yogurt. However, they have not been able to obtain sufficient information on market demand for chocolate milk. Management decided to launch the yogurt product first, work on its distribution, and collection of revenues, and then launch the chocolate milk, assuming that the market information they collect indicates support for such a product. DTR has purchased a yogurt filling machine and is actively seeking bids for cup suppliers and other equipment. John Hupp, Project Manager and Harold Evenson, yogurt expert, travelled to Alma Aty in December 1994 to train the Kazakh dairy specialists in production. The importance of sanitary conditions was emphasized. Samples were made, tastings conducted and flavors

8

determined. A local packaging artist was also hired. DTK began production of yogurt in June 1995. Some "start-up" problems in the processing equipment were quickly corrected by August 1995. Further quality improvements are expected as the quality of the inputs improve and delivery schedules are refined. Production quantities and cash flow should increase sharply after the marketing campaign takes effect.

In September, DTR started production of kefir, and sales are promising. A copy of DTK's September and October 1995 monthly progress reports are included in Appendix F.

5. Big Sky Foods Trading, Inc.

Big Sky Foods' proposal was approved by AID during the first quarter of 1995. The venture, located outside St. Petersburg, Russia, will process cranberries and other wild berries to produce fruit juice concentrate and other processed products for the MIS market. Big Sky Foods plans to invest $5.0 million in this venture over the next five years. One million dollars of USAID funds will be used to support technology transfer and training. Big Sky Foods is currently in the process of securing funds to meet the level of private investment required in the project.

B. FIELD OFFICE ACTIVITIES

1. Moscow Field Office

Moscow field staff conducted outreached activities to U.S. agribusinesses presently operating in Russia to promote FSRP resources. They also assisted U.S. firms in making local contacts with interested Russian counterparts. However, in 1994 USAID decided to exclude Russia from FSRP activities. As a result, the Moscow field office was closed, effective September 30, 1994. All positions within this office were eliminated and the members of the staff were terminated.

2. Chisin^a Field Office/'

As in Moscow, the Moldovan field office staff focused its efforts on activities that supported U.S. agribusinesses in its region of responsibility. The staff worked 'closely with U.S. agribijsinesses exploring investment opportunities in Moldova, Belarus and Ukraine, and provided extensive assistance to those interested in developing joint ventures. Meetings were arranged with government officials, introductions to potential partners were provided, and business advice and logistical support were furnished.

/In early 1995, TVG began its expanded program of technical assistance and training to assist in restructuring of the food systems in Moldova. This program focused on post-harvest activities in processing and marketing, improved management and financial systems, and assistance to Moldovan firms that have the capacity to achieve investments from private and public sources of finance. TVG staff provided business identification and logistical support

for U.S. and foreign business; served as a resource center for Moldovan agribusinesses to assist in accessing private and public finances, promoted Moldovan agribusiness opportunities in the U.S. through trade promotion, and worked with local business associations to conduct a series of workshops in marketing, financial management and business planning. The training was followed up with technical assistance.

TVG contracted with Land O 1 Lakes for Mr. Michael D. Christenson's services to help conduct the two Market Planning seminars and to provide technical assistance in interviewing potential JV partners. Mr. Christenson's report on the interview procedure and general results are given Appendix B. His particular findings with the Air Budzhak Company are given in a separate report in Appendix C. Air Budzkak flies fresh fruits and vegetables to areas such as Siberia and returns with goods such as meat and fish. They are in need of warehousing and cold storage facilities. Course material presented by Mr. Michael D. Christenson is given in Appendix E.

Technical assistance was provided to the Incomlac Dairy by Ms. Marcia Bolek. Her work assisting the dairy in business planning resulted in Development Technology Resources, Inc. (an FSRP subrecipient) negotiating a joint venture proposal to be submitted to USAID for funding consideration under the FSRP.

The office in Chisinau, Moldova remains in operation at termination of the project. It is expected that all equipment will be transferred to CNFA.

C. HEADQUARTERS

The headquarters staff was responsible for the overall management of the FSRP, liaison with AID, promotion of ventures among U.S. agricultural business, and managing the FGRP subagreements for compliance with reimbursements and reporting requirements. Following closure of the Moscow FSRP office, the San Francisco headquarters staff was given the responsibility for monitoring field activities in Russia and Kazakhstan.

Overall management of FSRP activities in Moldova and Ukraine was performed by the project manager in the San Francisco. On-site evaluations of joint venture operations were conducted by staff from both the Chisinau and San Francisco offices.

III. RECOMMENDATIONS

A. Petoseed Company Inc.

TVG recommends that the three TVs (including the new venture in Russia) continue supported as it expands into hybrid vegetable seeds.

be

10

B. CTC Foods, Inc.

This agreement has been terminated and no further activities are anticipated.

C. Chalice Investments, Inc.

Chalice Investments has been fully funded and no further reimbursement should be made. As specified in the subagreement, their activities should be monitored and annual reports submitted and evaluated for another three years.

D. Developed Technology Resource, Inc.

This joint venture has been successful to date and the future seems promising. DTR has utilized AID funding effetively for the initial investment and start-up funds with the current ratio of DTR to AID investments close to 2:1 DTR should provide a greater portion of the funding in future months, especially as the IV begins to develop a good cash flow.

E. Big Sky Foods Trading, Inc .

No funds should be advanced to Big Sky until strong financial support can be secured. In future proposals, AID should not obligate funds to a venture until the potential subrecipient has secured the necessary private financing.

F. Expanded activities in Moldova

Moldovan Government and agricultural businesses have been very receptive to the objectives and operating structure of the FSRP. TVG recommends that the training and technical assistance activities continue and the objectives remain in place. Assistance provided to Incomlac Dairy has resulted in a potential joint venture with Developed Technology Resource, Inc., which has prepared an application for the FSRP program.

G. Project Management

Most of the U.S. firms submitting proposals to the FSRP were rejected for a variety of reasons. A great deal of time and effort could have been saved in promoting the joint ventures, developing the proposals, evaluating the proposals, and explaining the rejection, if AID and TVG had spent more time Grafting the proposal criteria.

To small and medium-size agribusinesses, all of the U.S. Government contracting requirements contained in the subagrcement's standard provisions are onerous. The more the subagreements can be treated as a "grant" to the participating firm rather than a "contract" for a specific activity, the more flexibility the U.S. firm has and'the better its chances for success. The firm's commitment to invest in the NIS is more important to AID than the particulars of where and how.

11

IV. FINANCIAL INFORMATION

A. MANAGEMENT AND ADMINISTRATION

A comparison of the budget to actual expenses incurred in implementing the FSRP is included in Table 3. Total expenditures on management and administration of the cooperative agreement are below budget, primarily as a result of the reduction in the number of field offices, and the reduction in headquarters staff.

Billing for the indirect cost is a problem. TVG submitted an A-133 audit of its 1993 fiscal year Indirect Rate, which was prepared by the accounting firm Deloitte & Touche. The audit found that TVG's actual indirect rate was 13.64% for the period April 1992 through January 1994, rather than the 7.73% being billed under FSRP provisional rate. The AID Procurement Office responded that TVG needed to file for an approved indirect rate in accordance with DCAA guidelines (not A-133) since TVG is not a section 501(c)(3) corporation, although TVG is considered a not-for-profit cooperative association. TVG is in the process of calculating the indirect rate under these guidelines. TVG included in its revised budget the amounts it expects to recover under an established final indirect rate, although AID is billed only at the provisional rate. In the meantime, TVG is not recovering its full indirect cost.

B. SUBAGREEMENT REIMBURSEMENTS

Reimbursement of expenses incurred by U.S. agribusinesses participating in the FSRP were $1.3 million as for October 31, 1995. This figure is lower than expected for the year due to:

1.) fewer U.S. companies participating in the FSRP at the end of 1995 than originally anticipated; and

2.) a slower rate of investment by those U.S. companies participating in the program. Levels of both total and private investment in each project at the end of the year are provided in Table 4 for Petoseed and Table 5 for DTK. Table 6 indicates the total reimbursements to all the subrecipients.

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FOOD SYSTEMS RESTRUCTURING PROJECTCOOPERATIVE AGREEMENT NO. CCN-0006-A-00-3038-00

FINAL FINANCIAL REPORT

Month Ended: December 31, 1995

Financial Plan: Summary Page

ACCOUNTS

Salaries & WagesFringe Bens & TaxesTravel, Transport & Per DiemAllowancesSupplies & EquipmentOther Direct Costs

SubtotalIndirect Costs

Total

Sub-Agreement

Recipient Share of OutlaysSalaries & BenefitsTravel, Transport & Per DiemOthersTotal Recipient':* Share of Outlays

Total A.I.D. Contribution

Expenses by countryRussiaMoldovaGeorgiaKazakhstanUkraineOther/US

Total

BUDGET

$1,051,736$375,412$373,536$35,286

$235,628$244,285

$2,315,883$297,034

$2,612,917

$3,287,083

$0

$5,900,000

ACTUAL EXPENSE For

the Month Ended

December 31, 1995

$12,422$2,014$7,700

$0$.63

$10,606

$32,804$2,536

$35,340

$0

$0$0$0$0$0

CUMU-LATIVE TOTAL From February 1,

1993 ToDecember 31,

1995

$669,460$268,429$167,721

$33,487$184,476$226,805

$1,550,379$119,844

$1,670,223

$1,326,074

$11,901$741

$42,311$54,953$4,917

BUDGET REMAIN-ING

$382,276$106,983$205,815

$1,799$51,152$17,480

$765,504$177,190

$942,694

$1.961.009

$35,340 $2,936,427 $2,963,573

$16,404

$18,936

$35,339

%TO BUDGET

63.65%71.50%44.90%94.90%78.29%92.84%

66.95%40.35%

63.92%

40.34%

49.77%

I

II

M1/5/96 2:55 PM FSRP1295.REV

PETOSEED COMPANY, INC.Budget vs. Actual Expenditures (thru 6/30/95)

Account 6/1/92-5/31/93Actual Expenditures

6/1/93 - 5/31/94 6/1/94 - 6/30*5 TotalREMAINING

BUDGET

EquipmentTng., Tech. AssistAdmin. - NISR&DOther CapitaHnvest.Total Annual InvestmentCumulative Investment

USAID Reimbursement Cumulative USAID Invest.

Peto Annual Investment Cumulative Peto Invest.

TOTAL (USAID and Peto}

Ratio: Peto/USAID % Private % A.I.D.

193,38058,59925,000

175,0000

451,979451,979

00

451,979451,979

451,979

0.0100%

0%

5,886255.71442,000

225,00060,000

159,635234,36445,000

275,0000

358,901548,677112,000675,00060,000

588,6001,040,579

138,985138,985

449,615901,594

1,040,579

6. 87% 13%

713,9991,754,578

200,154339,139

513,8451,415,439

1,754,578

4.281% 19%

1,754,578

339,139

1,415,439

1,754,578

4.281% 19%

708,9991,239,558

-61,200 605,803-60,000

2,433,160

559,036

1,874,124

2,433,160

Notes:1. FY 94 - FY 95 budget excludes initial investment thru FY 93 noted in original project budget submission, as well as anticipated FY 98 investments.2. Petoseed is developing revised investment projections reflecting increased Admin and Other Capital Investment, and decreased Training and Technical Assistance costs.

PETOSEED.XLS

TABLE 5 DTR Budget

Accourt AID Reimbursements ti^ii^SMSf:

Salary and wagesFringe benefitsTravel, per diemEquipment and suppliesOther directIndirect

TotalCumulative AID Invest.

Budget : Dec-94

63,800.000.00

17,500.00197.060.002i.5oo;oo

0.00

299,860.00I

Feb-95

4.200.00

6,102.8812.469.00

-

22.771.8822,771.88

Mar-95

2.220.56-

487.6268,059.20

100.22

70.867.6093.639.48

Apr-95

220.00--

28.939.5029,070.54

58,230.04151,869.52

May-95

1.300.00--

66,621.00217.00

68.138.00220,007.52

Jun-95

5,500.00-

3,872.00677.00

1.008.00

11.057.00231.064.52

Jul-95

2.400.00-

1.131.70--

3,531.70234.596.22

Oct-95

.----

-234,596.22

Account DTR Matching

Salary ap.d wagesFringe benefitsTravel, per diemEquipment and suppliesOther directIndirect

TotalCumulative DTR Invest.

Budget , : Dec-94

524,642.00 20.217.66231,334.00 3,331.2572,500.00 3.287.00

2,843.222.00257.500.00 ' 7,065.00450.000.00 261.00....'. > -I:?.:? vV"-

i 4.379,198.00 34.161.91| 34,161.91

Feb-95

27.495.003,380.00

--

2,656.00-

33.531.0067.692.91

Mar-95

----

-67.692.91

Apr-95

11.613.251.686.013,500.00

-2,427.00

19,226.2686.919.17

May-95

11.212.001,512.00

223.0085.670.008.648.00

107.265.00194.184.17

Jun-95

11.333.001.437.001,550.00

-5,012.00

19.332.00213,516.17

Jul-95

11.432.251.510.001,505.00

-(967.00)

2,017.00

15.497.25229.013.42

Oct-95

49,344.006,093.001.006.00

129,362.0030.655.00

216,460.00445.473.42

Tota) 1 Olal tzttfmzwiKffifw

i 5,840.56 mmmmssmi11 594 20 ^mmsK^mm1 1 ,99t.U :*:-:-:-:-:-x-:-:vMVV3rIH/-:

176.765.7030.395.76 $8f;i$$9$i^

iliiiliiWiiiSi* ilssgiliiiisssiis;

234.596.22 ^mis$&m234.596.22

;-:iitK-:-:>-:-:i-:v:-:-K->:-:*;-:v:

Total

142,647.16 flliSfliiil&i18.949.26 1IW3SW11.071.00 1I:M$29;9QK

215,032.00 vm^s^smf55.496.00 mmwtxwm

2.278.00 m$imttzzmMS*

445,473.42 *iaj833gEJ4i56;i445,473.42

Total Cum. AIDS. DTR 4,679,068.00 34,161.91 90,464.79 161,332.39 238,788.69 414,191.69 444,580.69 463,609.64 680,069.64 680,069.64

Ratio DTK/AID 14.60 2.97 0.72 0.57 0.88 0.92 0.98 1.90 1.90 % Private 94% 100% 75% 42% 36% 47% 48% 49% 66% 66% %AID 6% 0% 25% 58% 64% 53% 52% 51% 34% 34%

Note: July reimbursement of $3,531 .70 not yet invoiced by DTR nor paid by TVG.

Page 1

Table 6

Subagreement Reimbursement through September 1995

Mar-93Apr-93May-93Jun-93Jul-93

Aug-93Sep-93Oct-93No"-93Dec-93Jan-94Feb-94Mar-94Apr-94May-94Jun-94Ju!-94

Aug-94Sep-94Oct-94Nov-94Dec-94Jan-95Feb-95Mar-95Apr-95May-95Jun-95Jul-95

Aug-95Sep-95Oct-95

Totaf reimbursedTotal GrantBalance available

Petoseed CTC Chalice DTR Big Sky

28,11652,867

2,987

55,01*

15,052: 10,331

7,972

41,155

125,603

339,137898,175559,038

71,71281,89458,28896,79630,530

89,029

428,249800,000371,751

44,65581,18821,904

41,04059,90423,19517,161

289,047289,048

0

22,77270,86858,230

79,196

231,066299,86068,794

01,000,0001,000.000

Total

1,287,4993,287,0831,999,583

FSRP Subgrant ReimbursementREIMSUB.XLS12/13/95

REPUBLIC OF MOLDOVA

FRUIT AND VE

Prepared by Tri Valley Growers, FSRP staff:A. Sim co, AJPynzari, E.Petrova, A.Vacaliuc

Country Director: Karen A. Potter(A Project funded by USAID)

Chisinau, Moldova December 5,1995

CONTENTS

PageI. MAP ............................................ 1

II. INTRODUCTION ................................. 2

III. AGRICULTURE IN MOLDOVA ...................... 2

IV. FRUIT AND VEGETABLE GROWING ................. 3

V. FRUIT AND VEGETABLE PROCESSINGA. The Processing Industry ...................... 7B. Fruit and Vegetable Juice Production ............. 9C. Dried Fruit Production ....................... 9D. Frozen Product Industry ..................... 10E. Finished Product Distribution ................. 10F. Wine Production ........................... 11

VI. THE FUTURE ................................... 12

II. INTRODUCTION

The Republic of Moldova is a country located in the extreme southwest region of the former Soviet Union. It is bordered by Ukraine to the north, east, and south , and by Romania to the west. Moldova covers an area of 33,700 square kilometers. Total population as of the 1993 census was estimated at 4.35 million. Most of the population are Moldovans (65 percent), plus significant numbers of ethnic Ukrainians (14 percent), Russians (13 percent), Gagauzi (Christian Turks, 3.5 percent), Bulgarians (2 percent), and other (2.5 percent).

Moldova declared its independence from the Soviet Union on August 27, 1991. The international community recognizes Moldova as an independent country.

III. AGRICULTURE IN MOLDOVA

Moldova possesses a diversified economy, the core of which (42% of the Gross Domestic Product for 1994) is a highly developed agro-industrial complex. Important elements in the agricultural industry include: viticulture and wine making; sugar; tobacco; vegetable oils; fruits and vegetables.

Approximately 80 percent of Moldova's territory is covered by the rich black chernozem soil and the country has a temperate climate. Rainfall varies between 250 mm in the South to over 500 mm in the North with most rain occurring during the growing season (May - August). The climate makes Moldova a naturally productive agricultural region.

Today, Moldova has about 2,580 thousand hectares of land under cultivation. This represents about 75% of the country's total area. Arable land represents about 69% (1,800 thousand hectares); orchards and berry fields, 10% (260 thousand hectares); vineyards, 10% (260 thousand hectares) and about 10% pasture land (260 thousand hectares).

Approximately two-thirds of the Gross Agricultural Production in Moldova comes from crop production and one-third from livestock production.

Privatization and land reform in the agrarian sector of the country has already changed production patterns. At the beginning of 1994 there were 5,673 agro-industrial companies in Moldova, of which 3,058 were private.

A government-endorsed program has been developed for 1995-1997 which addresses the growth of the agro-industrial complex. Under this new program, cooperatives and joint- stock entities will be encouraged. Promotion of competition is also recognized by the program as a necessary part of industry development; and efficient management not burdened by the old, state-mandated system is considered to be an essential element of developing a healthy, market - driven economy. The program stipulated acceleration of moving land into private ownership; but at present, this issue is put on hold and the specifics are being discussed by the Parliament.

IV. FRUIT AND VEGETABLE GROWING

Fruit production in Moidova generally occurs in the following areas: Northern zone - apples, pears, quince and stone fruit, cranberries, raspberries, strawberries; Central zone - plums, pears, peaches, apricots, sweet and sour cherries; Southern and South-Eastem zones - peaches, apples, cranberries, raspberries, strawberries.

Vegetable production in Moldova typically has been one of the most profitable branches of agricultural production. More than 30% of the cultivated area in Moldova is planted with tomatoes, sweet peppers and eggplant accounting for about 72% of the gross amount of vegetables produced. Other important vegetables cultivated in Moldova are carrots, sugarbeets, onions, garlic, green peas, pumpkins and squash.

About 41 % of all vegetables in Moldova are produced in the South-Eastern zone including large amounts of tomatoes and green peas; 40% of the onion production

Agricultural Zones in

Moldova

JjjjjjjJJ Northern Areasugar beeb, soybeans sun flower, tobacco, grain cabbage, cucumbers, potatoes

WMA Central Area

viticulture, cereals, sunflowei tobacco, sugar beets

Southern Area

viticulture, horticulture,tobacco, sunflowersonionsisNvoj South-EasternKVX-J Areahorticulture, viticulture, vegetable growing (tomatoes, green peas)

Figure 1

Source: Academy of Science

comes from the Southern zone. Cabbage and cucumbers are grown mainly in the Northern zone; potato production is also concentrated in the Northern region with approximately 44% of the total production. In 1994 Moldova produced 204 thousand metric tons of potatoes.

One tenth of Moldova's cultivated land is planted with vineyards. In the 1980's vineyards covered even a larger area; but in recent years this area was decreased because thousands of hectares of vineyards were uprooted during Gorbachev's anti-alcohol campaign.

The climatic conditions of the Central region of Moldova are favorable for the growing of grapes and for the production of white table wines and sparkling wines. In the wanner Southern region the climatic conditions are very favorable for the growing of red wine varietals and grapes for liqueur wines. The areas planted with sparkling grape varieties cover approximately 60,000 hectares; there is a sufficient raw material wine base to meet the production demand of sparkling wines. Table grape varieties ( for consumption ) are also cultivated in Moldova. Moldovan viticulture specialists began to grow European varieties about 35 - 40 years ngo. However, the proportion of imported vines as a share of domestic planting has always been small.

In 1994 the collective farms (many of which are moving into the Joint-Stock Company form of private ownership) grew the major crops - 64% of vegetables, 74% of fruit and berries, 99% of sugarbeets. Potato- growing was concentrated mostly on private garden lots (80% of the total yield).

Figure 2.

Vegetable, Fruit and Berry Production(in thousand tons)

1400-1200-1000-800-600-400-200-

0

Vegetables Fruits and Berries

19891990

19911992

1993

Since 1991, Moldova's fruitand vegetable productionhas sustained significantdeclines due, in large part, toa series of natural disasters:a severe spring freeze in1991 followed by severedroughts in 1992 and 1994.The specific production tonnageand hectares are summarized in figures 3 and 4 on the following pages.

1994

Source: Department of Statistics

Figure 3. Volume of Fruit Production in the Republic of Moldova

Type of Production

Stone fruitSour cherries

Sweet cherries

Plums

Peaches

Apricots

Seed fruitApples

Pears

Quince

Grapes

Produced ip 1993

(thousand tons)

4.00

3.00

95.00

45.00

3.00

570.00

20.00

1.00

889.00

Produced in 1994

(thousand tons)

2.00

2.20

75.00

33.00

0.30

409.00

12.00

1.00

600.00

% change

1994vs 1993

-50.00

-26.70

-21.10

-26.70

-90.00

-28.20

-40.00

-

-32.50

Total Fruit Production 1630.00 1134.50 -30.40

Source: Ministry of Agriculture

Figure 4. Vegetable Growing Areas in Moldova(thousands hectares)

Type

Cabbage

Cucumber

Tomaio

Sugarbeet

Carrot

Winter onion

Winter garlic

Green pea

Sweet pepper

Eggplant

Pumpkin

Squash

Other vegetables

Total

Biannual seed vegetables

Two crops for 1 year

Perennial vegetables - 2 years

Onion seeds

Potatoes

All categories of farms '

1993

4.5

2.7

12.7

0.8

1.1

3.2

0.0

2.8

3.8

0.7

0.2

0.7

0.8

34.0

0.3

3.0

3.0

0.2

62.8

1994

3.9

2.5

12.2

0.6

0.9

2.8

0.0

4.0

3.7

0.7

0.2

0.9

0.6

33.0

0.1

2.5

2.7

0.1

57.2

From which:

Collective farms and State farms

1993

4.5

2.7

12.7

0.8

1.1

3.2

o.o2.8

3.8

0.7

0.2

0.7

0.7

33.9

0.3

3.0

3.0

0.2

4.5

1994

3.9

2.4

12.2

0.6

0.9

2.8

0.0

4.0

3.7

0.7

0.2

0.9

0.6

32.9

0.1

2.5

2.7

0.1

4.3

Farms with Collective Ownership 19942

KolkhozesAgro-firms

2.3

1.8

6.9

0.4

0.5

1.9

-

3.2

2.5

0.5

0.0

0.4

0.3

20.7

0.1

1.6

1.6

0.1

2.5

Joint-Stock Company's and others

0.6

0.3

1.6

0.1

0.1

0.4

-

0.2

0.5

0.1

0.0

0.1

0.1

4.1

0.0

0.0

0.0

0.6Source: Ministry of Agriculture

1 - All categories of farms include state, collective and private.

2 - This column indicates farms with collective ownership only versus the previous column which dso included state farms.

V. FRUIT AND VEGETABLE PROCESSING

A. The Processing Industry

There are curren* ly 23 functioning processors in Moldova with a combined production capacity of 1.5 billion conventional jars' per year (1 conventional jar is 0,65 liters). Production levels in 1994 were 807 million conventional jars, 54 % of capacity. Specific levels are summarized in Figure 5.

Figure 5. CANNING INDUSTRY PRODUCTION(Million Conventional Jars)

PRODUCT 1993 1994 % change 1994vs 1993

VegetablesDifferent vegetablesVegetable marinadesVegetable cans with meat additiveVegetable cans for snackTomato pasteTomato sauce

Fruits / JamsStewed fruitFruit preservesSliced fruitJams

JuicesFruit juicesConcentrated fruit juicesGrape juiceTomato juiceVegetable juices

MeatMeatMixed meat and vegetables

Baby foodOther cansTotal cans

85.325.9

0.651.0

132.742.5

71.80.51.2

88.7

214.8325.0

3.625.73.8

5.66.1

38.5-

1123.3

114.417.50.8

43.097.041.0

17.80.30.5

34.5

63.3362.8

0.618.0

1.2

1.31.5

16.05.4

806.9

+34.1-32.5

+33.3-15.7-27.0

-3.5

-75.2-40.0-58.4-61.2

-70.6+ 11.6-83.4-30.0-68.5

-76.8-75.5-58.5

-28.2

'- This is the standardized measurement of the processed production used for calculation purposes, and this includes: canned tins, glass jars, processed production in bulk and tetra - pack.

The following factors contributed to the changes in volume. After the collapse of the Soviet Union, notwithstanding the relatively high quality of the products made by the canneries the growing costs of production and. out-dated packaging have considerably limited Moldovan products competitiveness even in the traditional NIS markets. This caused loss of some of the markets and made it unprofitable for the companies to sell certain types of the processed products versus fresh ones (i.e. fruit juices, stewed fruit, jams).

However, there are canneries which have used their revenues to start modernizing, their production facilities. They have purchased up-to-date, energy-saving processing machinery that is highly efficient, as well as small to medium capacity packaging equipment, which improved their product and allowed them to increase their sales ( canned vegetables, concentrated apple juice ).

Moldovan canneries produce more than 220 different preserved products which enjoy steady demand with consumers in more than 30 countries including the NIS and some Western markets. Among all products, apple juice concentrate is one of the leading; its production has increased considerably since some canneries equipped themselves with the new western made apple-processing equipment. This product sells well in 30 countries including the USA, Germany, Austria, Canada, the Netherlands and traditional NIS markets.

Figure 6.

Fruit and Vegetable Canning for 1994 % of total production

Canned Meat and Soybeans 2% \

Source: Ministry of Agriculture

(e

B. Fruit and Vegetable Juice Production

Almost all canneries in Moldova produce fruit juices. A total of approximately 400 million conventional jars per year (260,000 tons/year) of apple, grape, plum, peach and apricot are produced ( -21.6 % versus 1993 ). While the total production decreased, there was a growth of the apple juice concentrate production (+11.6 % versus 1993). Importantly, this goes primarily to Western export markets especially Germany.

Vegetable juice production consists mainly of tomato juice. Production in 1994 was about 18 million conventional jars per year (5,200 tons/year), which is -36.7% versus 1993. The production decline is due to decreased supply because of weather conditions combined with the lack of market demand.

Figure 7. Figure 8.

Vegetable Juice Production(mln conventional jars)

Tomato Juice

Other Vegetable Juices

Fruit Juice Production(mln conventional jars)

Mil Concentrated Fratt Juicei H| Fruit Juieei

9) Grape Juicei

1993 1994 1993 1994

Source: Ministry of Agriculture

C. Dried Fruit Production

Industrial capacities for the production of dried fruit is about 11,000 tons per year; but in recent years production has amounted to a very low one thousand tons per year.

Decrease of raw material supply because of weather conditions combined with high production costs have severely depleted this industry.

Based on information provided by our company surveys, this industry has a large potential for growth with strong markets in Russia and Germany (particularly dried plum production ).

The main lands of fruits designated to be dried are apples, apricots, plums and grapes. The drying method utilized is the conventional hot air drying process.

Figure 9.

Dried Fruit Production(in tons/year)

1200-

1000-

800-

600-

400-

200-

1993 1994

Source: Ministry of Agriculture

D. Frozen Product Industry

This is currently a small industry in Moldova with a production capacity of 4,000 tons per year. Only 3 enterprises have facilities to do this: Cupcino, Cantemir and Causeni canneries (the canneries are named after locality which is typical for Moldova). In 1994 production of frozen fruit (peaches, grapes, plums, cherries and berries) amounted to 728 tons. Russia, Belarus and Kazakhstan are the main markets for these products.

E. Finished Product Distribution

Less than one-third of the canned product produced in Moldova is for local consumption. More than two-thirds of the finished product goes to Russia and other countries of the Former Soviet Union as well as Western countries. Moldova has always had strong export markets because of its reputation for quality fruits and vegetables.

Under current conditions, finished product is generally shipped through state owned trucking companies (via road) or via rail. A limited quantity is shipped by air.

10

Figure 10.

Finished Product Distribution - Export Markets 1994

Other Former Soviet Republics 12%

Source: Department of Statistics

F. Wine Production

This provides a brief overview of the wine industry. A separate report is being prepared by the TVG FSRP staff.

Moldovan wine production can be divided into the following categories:

- Basic wines for production of sparkling wines and brandy bottled in Moldova, and in the other former Soviet Union Republics;

- Fortified wines (sherry, vermouth, madeira wine types );

- Dry wines divided into two types:- dry wines of quality (the best varietals, usually aged ),- ordinary dry wines ( "vins de table" ).

11

There are 145 wineries in Moldova. The main characteristic^ of Moldovan wineries is their large production capacity. Most have the capacity for processing 10,000 tons per season, with the exception of four plants with capacity for 40,000 tons of grapes per season. Some of the wineries are only the producers of wine and do not own vineyards. There are also wineries that possess their own vineyards or establish joint-stock companies together with raw material suppliers.

In the course of the last ten years the wiu production has been in decline. This reduction is due to several factors. First of all, Gorbachev's anti-alcohol campaign resulted in the uprooting of 40% of the root stock; most of this has not been replanted due to lack of capital. Other factors contributed to the more recent decrease. Much of the equipment at the wineries is old, technologically out-dated, and fully depreciated; replacement will require large investments which the wineries can't support. Presently, the equipment is used at 30-40% of its capacity. Due to the lack of credit and foreign currency, wineries cannot obtain sufficient supplies for bottles, corks, bottle caps, chemical products and other inputs. These factors combined with the decreased supply of grapes because of weather conditions influenced the decline in wine production.

In 1994 the wine production of Moldova included: 11 million bottles of sparkling wines; 300,000 to 400,000 hectoliters of table dry wines; and 150,000 hectoliters of brandy.

Most of Moldova's wineries have been privatized in the 1993-94 program. The wineries which are not on die list to be privatized are those producing brandy sxich as the Beltsi, Aroma and Tiraspol plants, and those producing sparkling wines such as Krikova and Combinat Champagne Moldova Chisinau.

VI. THE FUTURE

An aggressive, government-sponsored program to develop the fruit and vegetable industry is underway in Moldova. More efficient growing methods giving improved yields, better processing facilities and techniques, and trade promotion are important elements of this program.

The strategy for future growth of the Moldovan agricultural industry, and in particular the fruit and vegetable* sector of this industry, is to recognize the new market conditions and move toward production / processing of fruits, vegetables, and specialty products which are much more marketable and profitable both inside Moldova and also as export items.

12

The following projections are provided by the Ministry of Agriculture and indicate extremely large increases in the number of hectares planted of certain vegetables. In light of the current levels and economic conditions, these projections may be optimistic and should be viewed cautiously.

Figure 11 . Estimated Growth in Vegetable Industry

Breeds

Tomatoes

Cucumbers

Onions

Sweet peppers

Eggplants

Cabbages

Carrots

Beet root

Green peas

Zucchini

1995

Planted area

(xl,000 hectares)

21.00

30.00

35.00

50.00

8.00

42.00

10.00

9.00

65.00

12.00

Gross harvest (xl,000

tons)

390.00

12.00

26.00

50.00

55.00

45.00

10.00

95.00

26.00

18.00

; r . 1996

Planted area

(xl,000 hectares)

21.00

35.00

36.00

55.00

9.00

43.00

12.00

9.00

68.00

13.00

Grossharvest (xl,000 tons)

395.00

16.00

32.00

56.00

60.00

48.00

13.00

110.00

28.00

19.00

1997

Planted area

(xl,000 hectares)

22.00

40.00

45.00

60.00

10.00

45.00

15.00

10.00

70.00

15.00

Grossharvest (xl,000

tons)

420.00

20.00

37.00

61.00

75.00

52.00

16.00

125.00

32.00

24.00

Source: Ministry of Agriculture.

13

Summary Report:

Introductory Interviews with Technical Assistance Candidates

September 15-29,1995

Food Systems Restructuring Program, Moldova, N.I.S.

Michael Christenson, Management Consultant

Executive Summary

This report summarizes screening meetings held with five firms following the two Marketing Planning courses conducted by the USAID Food Systems Restructuring Project. The primary aim of these meetings was to qualify firms which could genuinely benefit from FSRP help in locating sources of private or public capital, and to begin to aid them, where possible, in developing cogent business plans to use in approaching investors.

These firms were represented in the two marketing courses conducted September 15 - 18 and 25 - 28 and requested assistance. In addition, a half-day marketing seminar was conducted at a management training institute. The organizations assisted were:

1. Moldova-Romanian Joint Venture: "AMATO" Limited Liability Company

This company is being managed by Mr. Victor Efremov, an energetic, imaginative entrepreneur. He has financial and technical assistance from his Romanian partner to produce and sell fruit-flavored sugar-based syrups used in the home, in bars and restaurants, and from kiosks on the streets. Mr. Efremov's Romanian partner also owns stock in "Aromatics", an American / Romanian joint venture with Elan International, Inc. of the USA, which produces the aromatic additives used to flavor the syrups.

We assessed Mr. Efremov's need for financial assistance as low but, in a follow-up meeting, conducted technical assistance to address his expressed need to plan for product sampling and in-store market research.

2 " ARECOOP" Producer / Consumer Cooperative

This firm was organized as a group of seven smaller associations decades ago to serve consumers in Hincheshti Region in the southern part of Moldova. These seven cooperative societies collapsed since the change in government. Mr. Caraush resurrected them as one organization three months ago and is now in the process of reorganizing it attempting to establish a sense of ownership among the members, to stimulate their competitive energies.

Mr. Caraush was favorably impressed with the principals which govern cooperative organization in the west as I introduced them to him. I IS AID could make a significant impact on this organization and others like it by sending a short-term consultant who is well versed in cooperative organization and finances, to help them reorganize in a way which provides proper incentives to the organization and the members served, and stimulates these organizations' competitiveness as privately owned businesses.

3 PEGAS Company

Three meetings were held with representatives of this company. Please refer to separate report on the related companies "PEGAS" and "AIR BUDZHAK".

Introductory Interviews, Moldova 9/1995 Page3

Program Description / Scopy of Services

The purpose of the Food Systems Restructuring Program (FSRP), funded by the U.S. Agency for International Development, is to assist Moldovan private agribusinesses to become more competitive through improved economic performance, by facilitating linkages with sources of private and public finance and trade, The program focuses on medium and large enterprises. Activities are coordinated with other donor and funding organizations.

The program has four main components:

1. To identify potential partners and provide logistical support for U.S. and foreign businesses interested in trade and investment opportunities in Moldova.

2. To provide a resource center for Moldovan agribusinesses, to assist them in accessing sources of finance, especially the World Bank, the Western N.I.S. Enterprise Fund, the E.B.R.D. and private venture capital funds.

3. To work with private businesses and fanner associations to conduct a series of linked workshops and follow-up technical assistance in marketing, financial management and business planning. These activities are conducted throughout Moldova, country-wide.

4. To support Moldovan agribusiness through trade promotion activities in the U.S.A. and, to a lesser extent, to support trade efforts in traditional markets.

In addition, the program addresses specific policy and regulatory issues that are impediments to trade and investment opportunities by Moldovan agribusinesses and, when requested and appropriate, provides advice to government agencies on agribusiness policy matters.

to

Scope of Services

In a three-week assignment, to conduct two four-day marketing planning seminars, one in Chishinau and one in Beltsi, and to conduct technical assistance with individual Moldovan enterprises, including identifying businesses which are good candidates for trade or foreign investment, and beginning the process of helping them to write business plans.

Introductory Interviews, Moldova 9/1995 PageS

Introductory Interviews

1. Moldova-Romanian Joint Venture: "AMATO" Limited Liability Company

Please refer to four page fact sheet / questionnaire prepared by this company for the World Bank exhibition, "Moldova, Open to the World", Attachment 1.

A meeting was held the morning of Monday September 18 to assess this company as a candidate for assistance under the USAED Food Systems Restructuring Project. In attendance were Karen Potter, Eleanora Petrova and Mike Christenson from TVG, and Victor Efremov - Chairman of AMATO and a participant in the preceding course.

Company / Product Overview

Mr. Efremov is an energetic, imaginative entrepreneur / salesperson who is determined to take advantage of the new economic freedom in Moldova. He has financial and technical assistance from his Romanian partner to produce and sell fruit-flavored sugar-based syrups used in the home, in bars and restaurants, and from kiosks on the streets. Sold in half-liter glass bottles with a non-resealable metal pop-off cap, and glossy multi-colored labels, the syrups are of reliable quality when mixed with water or carbonated water according to the 7:1 ratio indicated on the label. Five flavors are available.

Mr. Efremov's Romanian partner also owns stock in "Aromatics", an American / Romanian joint venture with Elan International, Inc. of the USA, which produces the aromatic additives used to flavor the syrups.

AMATO began production and sales in Moldova in October of 1994 and had a first-half turnover for 1995 of about 500,000 Lei, halt' of which was syrups and half sales of dried mixes to produce ice cream.

Issues

Mr. Efremov's competitors in the syrup business number about twenty. Local suppliers use sugar substitutes to bring down their price, but the supply is irregular. Bulgarian competitors are popular and less expensive, but their 6:1 mix ratio apparently produces a very weak drink, so that for comparable flavor, their price is essentially the same. There are also Belgian and Israeli competitors on the Moldovan market.

Mr. Efremov estimates his retail store market share in Chishinau to be about ten percent. His company is sales-limited at present, with production at far below capacity in the Bakery where the syrups are contract-mixed.

He has been focused on retail cost lately, thinking to compete more effectively by using part sugar substitutes, and by selling in a one-liter plastic bottle marked as "1 KG." but, in fact, only .8 liter in volume.

Introductory Interviews, Moldova 9/1995 Page 7

Techniques for accomplishing these objectives were presented, including:

* Scout out high traffic areas in the store and busy times in advance

* Conductors of sampling wear bright tee shirts

* Conductors have a prepared script of product attributes/advantages and repeat this vocally to samplers

* Display of recipe items (now on back of bottle) and large placard of recipes

* Encourage next purchase through nearby coupon with validity period post-dated and running for two weeks

* Utilize bright colors, intrusive attention- getting posters or hanging placards

* Conductors have pleasant personalities and willingness to verbally invite participation

* Sanitation and sanitary image should be a priority, including white clothing, clean or disposable glassware

* Product display nearby and offer of discount for purchase

* Encourage repeat purchase and brand loyalty through offer of coupon for free product with 10 mailed-in UPC labels

An outline and suggested questions for an in-store research study with product tasting was given. Product might be tasted mixed with both carbonated and non-carbonated water. The questionnaire should be kept as brief as possible to prevent incompletes. The questionnaire should be duplicated with one completed copy kept for each participant, to enable cross- tabulation, and should be administered in an interview format. Answers should be recorded word-for-word where possible or in complete thoughts. Interviewer bias should be avoided through explanation of questions, suggested answers, or "good answer" encouragement to respondents. The order in which questions are asked can be rotated, as possible, to assure that all questions are answered in equal number. The questionnaire should be pre-tested with a small number of people to insure clarity and completeness. It should have several parts with the following as potential questions:

INTRODUCTION: "Hello, my name is and I am conducting research into peoples' productpreferences. Your opinions are valuable to us and will be kept confidential. I am going to ask you a few questions..."

SCREENER QUESTIONS:"Does your household use sweetened flavored drinks, including soda, mixed syrups with water,etc.?" (If "no", terminate interview)

"How often...?" (establish categories in advance)

"Who buys...?" (if buyer not available, terminate interview)

Introductory Interviews, Moldova 9/1995 Page 9

Jo

2. "ARECOOP" Producer / Consumer Cooperative

A meeting was held the afternoon of September 18 in the offices of TVG Moldova. Present were Karen Potter, Eleanora Petrova and Michael Christenson of TVG and Mr. Vasile Caraush President of the Producer / Consumer Cooperative ARECOOP, located in Hincheshti.

Historical Background

This firm was organized as a group of seven smaller associations decades ago to serve consumers in Hinceshti Region in the southern part of Moldova. Ostensibly it was a private organization controlled by members who contributed share capital, but in fact it was a monopoly processor of meats, bread and dried fruit, and monopoly wholesale / retail organization, despite lack of state ownership.

These seven cooperative societies collapsed since the change in government. Productive assets disappeared from the plants and retail stores closed. Mr. Caraush resurrected them as one organization three months ago and is now in the process of reorganizing it- attempting to establish a sense of ownership among the members, to stimulate their competitive energies. The retail side of the organization is experiencing some competition from private shops now.

The association has 16,800 members. Of these, 1,800 are employees. Their original capital contribution under the old political regime was 30 Lei (USD 7.00) for "ordinary" members, and 150 Lei (USD 33) for employees. No return was paid to these individuals on their contribution. Likewise, members receive no special treatment when they make purchases. Many have in essence forgotten their ownership position, and the organization is controlled by the employees, who have a bigger monetary and also personal interest. Similar to other production cooperatives with employee ownership which I have seen in Poland, the employees of this association have created favorable conditions for themselves

Mr. Caraush is in the process of valuing the assets of the "new" association. He would like to reward and motivate individual employees, by giving them specific ownership in some assets, say, a retail store. There are alternatives before parliament, one of which is modeled on action taken in the Ukraine, which would give individual members a 49% interest in individual retail stores. Members could cash out their investment after three years, receiving a monetary sum based on their initial investment and number of years of membership.

Recommendation

Mr. Caraush was favorably impressed with the principals which govern cooperative organization in the west as I introduced them to him, including: retained earnings for growth, revolving capital contribution from members and dividends to members based on usage, and

Introductory Interviews, Moldova 9/1995 Page 11

would cost US$ 1.4 million. It would absorb 3.5 tons of wine per year (of 50 tons), producing 5 million bottles per year from 10 thousand tons of grapes. The payback on this equipment would be fairly rapid, assuming the market exists and Mr. Fetish's pricing calculations are correct, with an increase in revenue of US$ 12.5 million on 5 million bottles production in one year. He also showed us his new labeling for the "Codru" brand, and said in class, that the label and a cork rather than a plastic stopper alone have meant a nearly 100% increase in contribution per bottle after the additional expenses.

Mr. Fetish proposes that Ceshmea look for an investment partner to provide loan capital to finance the purchase of the bottling equipment.

Issues.

One significant potential "bottleneck" in wine production can be a reliable source of bottles. One TVG sponsored joint venture in Georgia with an American partner has been brought to a standstill for lack of bottles. Mr. Fetish assured us that bottles are available from Bulgaria or Romania for about US$ 0.125 each. Because the plant is located only 15 km from a Black Sea port, the Bulgarian bottle sources are 200 km. closer than from Chishinau.

Ceshmea Company's main markets for this wine are Moldova, Russia, Ukraine and Belarus, where it has supplied working bottling plants with bulk wine. A major issue quality consideration arises when one considers the stability of these markets. The wine sold under the "Codru" label was very ordinary to our taste. Although Moldovans, including Mr. Fetish, are convinced of their wines' quality reputation in the Western market, he said he had never tasted a French, American or Australian wine, to see what appeals to Western consumers. The question was raised as to whether he was prepared to address quality issue, and to make overtures to new western-markets as well.

Recommendations

Mr. Fetish was encouraged to get firm price / availability indications in writing from several sources of bottles, as well as on the bottling equipment.

TVG would seek to have a small selection of western wines brought by the next consultant in October, to introduce them to Mr. Fetish and other representatives of Ceshmea, so they could get a sense of what consumers there might expect. Mr. Fetish was also encouraged to enter a selection of wines in western trade fair competitions to see how it measures up to other wines. This process should lead to a decision of which markets he wants to approach with his wines

After these steps have been taken, the Food Systems Restucturing project could seek to assist Ceshmea with the preparation of a business plan for presentation to potential sources of funding.

Introductory Interviews, Moldova 9/1995 Page 13

Fresh products:- bottled milk-kefir- soft cheeses

Dry milk- full cream- low fat (0.5%)

Ice Cream

Sweetened condensed milk

125 tons/day 25 tons

15 tons (2.5 shifts)

12 tons (2.5 shifts)

5 tons

12 to is in summer months

The most profitable products are dry milk, which is sold year round to Western Europe, and ice cream, which is sold in summer months all around the country in bulk, small tubs and "waffle" cones. Butter is profitable in the winter, and not the summer, and is sold 10% within country, and the remainder to the former Soviet republics (Russia and middle Asia)-- mainly on a barter basis. They used to produce condensed milk for the candy factory in Beltsi, which is now practically bankrupt. They have tried producing plain unflavored yogurt, but found that the population prefers kefir. They were proud of their kefir culture, which we sampled. It was delicious, as was the ice cream.

Particularly attractive for western taste was the chocolate-flavored butter, available in plastic tubs (unfortunately, marked "cheese" due to packaging shortages) and with or without nuts. This product was commonly available in Soviet times. We judged it a potential "hit" for export, though the fat content was around sixty percent, making good refrigeration a must.

Observations

All products are unbranded, though the company is working on a brand name and label changes.

Plastic bagging equipment for fresh milk is out of order and will be replaced. Bags are manufactured in the Ukraine.

No vitamins are added to their products in general, though they do offer a special milk for children with vitamin C added, in the winter.

Supplying farms have cooling equipment, but only cool down to ten degrees Celsius, making the shelf life of fresh products less than what it could be.

Introductory Interviews, Moldova 9/1995 Page 15

This presentation arose out of contact with three manager / students in this program during their recent visit to Land 0' Lakes under the USDA Cochran program. It was a good opportunity to develop relationship with Mr. Michael Dumitrashko, the rector, and also to publicize availability of the FSRP office as a resource to the 2,000 student / managers from various Moldovan firms which pass through this program annually, (please see program description attached).

Introductory Interviews, Moldova 9/1995 Page 17

QUESTIONNAIRE

Portrait'of the firmProduction and sale of syrups - 5 kindsProduction and sale of dried medleys'ft\i)fe^>

for production of ice-creamPrinting servicesCommerce

Production programProduction of syrups - 500000 leiProduction of dried medleys for pro

duction of ice-cream - 500000 lei ? Commerce -1000000 lei

SuggestionsTo invest into production some kinds of

food products: soft drinks, dried medleys for ice-cream, ready-made ice-cream, etc.

FullMoldova-Romanian jointe ventcure

AMATQ Limited liability company"'.'.> 's'Address

277005, Kishinev, str. Vlahutse.13Telefon number

(0372)222533,226539, .Fax number

. (0372)639042Additional information *

Name and title of the principal contactperson

Victor Efremov, Chairman of the board Konstantin Kirca, Head of commerce

Date of establishment March, 1994 / Oj^^h^

Number of employeers 14 people

Turnover 1995, first half of the year - 514868 lei

flepresenfatfon no *

Membership in associations Member of the associations of owers

and lease holderrs

-it*-

CONTACTS WITH FIRMS OUTSIDE MOLDOVASupplier and purchaser relationships with foreign firms - Import of raw materials from roma-

nian-american firm Aromatics for production of syrups, import of raw materials from Romanian firm Floranis SRLfor production of ice-cream. Export -sale to different firm from Romania and Germany sugar (commerce). ......

Tehnotoaicai cooperation - Production of. syrups using tehnplogy of the American firm Elan International Inc.* New Jersey, USA. e>i^Jlca^_ YeSLcAL**^^ f .

Investment proposals bv foreign firms for tolnt ventures and other forms - The.firm is created as a joint venture, up to now had no other proposals. ^^^^ '.-.*- '

Visits bv foreign companies - Mostly companies from Romania on problems connectedwith the sale of sugar. ''

INVESTMEN PLANS , (in lei)

1 . Production a pouring into bottles soft drinks bottles PET (1 ,5 litre) ......... - 340000,02. Production of margarine.......... .........".................................. ............... - 454000,03. Production of chips ......................................................................... 45000,04. Production of cornflakes.................................................................

SPECIFIC INVESTMENT PROJECTS1 .To make deposits into a technological line to pour soft drinks (bottle PET - 1 ,5

litre):1.1. Investmens into equipment (second hand) with assembling offer from Poland -

181600,01 .2. Preparation of areas - 13600,0 1 -3. State purchase for bottles 200000 x 0.1 $ x 4,54 = 90800,01 .4. Purchase of row materials for work during ine month- 23000,01 .5. Advertising - 31000,0Total investments - 340000,0The best variant for this investment is februarie-march.Expenditures for the production of one bottle - $ 0,25 (in lei) - 0,91Minimum profit from 1 botle - $ 0,17 (in lei) - 0,77 (taking into consideration all kinds

of payment of taxes)Compensation - 2,4 months (taking into consideration bank interest 60% a year in

Moldova).Target market and perspective sales - Moldova, Ukraina, Belorussia, Russia, Roma

nia.

L INSTITUTE OF MANAGEMENT

Prof. Michael I. Dumitrashko Rector

INSTITUTE OF MANAGEMENT AND ADVANCED TRAINING IN AGRIBUSINESS

bd.RenasleriilO/1 Kishinev, Moldova, 277005 E-mail: michacl@imata.moldova.su

tel. 22-69-24,22-34-05fax. 62-88-55Code:Itnl (3732), CIS (0422)

1. BRIEF HISTORICAL INTRODUCTION

The Institute of Management and Advanced Training in Agribusiness

(IMATA) was founded in 1991 on the basis of the fusion of two

organisations:

Faculty of Advanced Training of Managers and Agricultural

specialists (founded in 1965) of the State Agrarian University of

Moldova, the oldest Moldavian University;

Higher School of Management in Agribusiness (founded in 1985).

At the present time IMATA is the only one in Moldova, that has a more

than 30 years' experience in the field of advanced training in

agribusiness owing to its administrators and staff members, which

have worked at the State Agrarian University for a long time.

The main Institute's mission is to meet the growing need for

development of privatisation in agribusiness and render assistance on

implementation of modern techologies in agriculture and

environmental protection. IMATA is called upon to provide advice,

information and advanced training on developing the types of

agricultural services that operate in a market economy.

authority administrators, managers and specialists from la ge and

small farms.

Courses vary from one week to ten months in duration. Teaching of

languages and computer basics forms the major parts of the longer

course, together with an emphasis on agrarian reform.

More than 2,000 chiefs, managers and specialist of private, collective

and state farms, specialists in plant growing, animal breeding and

process industry are trained yearly.

The academics of Institute consult in carrying out privatisation

processes, in transition to the market economy and also in

introduction intensive technology in the field of plant growing, animal

breeding and process industry.

Institute also works co-operatively or on an international consortium

basis with other universities, collective and private farms, co-operative

enterprises, international organisations to carry out projects of mutual

interest and benefit.

Institute has links with the same kind Institutes and organisation in

USA, UK, Netherlands, Greece, Romania, Russia, Belorussia, Ukraine,

and other countries. At present IMATA acts with the American non-

profit organisations VOCA and Eurasia Foundation, Plunkett

Foundation (UK) under several projects on training of managers and

specialists, establishing new forms of enterprises in agribusiness and

improve its economic efficiency in Moldova.

Recommendations for Follow-up to Land O' Lakes International Development

Mr. Caraush was favorably impressed with the principals which govern cooperative organization in the west as I introduced them to him, including: retained earnings for growth, revolving capital contribution from members and dividends to members based on usage, and one-person one-vote. USAED could make a significant impact on this organization and others like it by sending a short-term consultant who is well versed in cooperative organization and finances, to help them reorganize in a way which provides proper incentives to the organization and the members served, and stimulates these organizations' competitiveness as privately owned businesses.

Such a consultant should also be an individual qualified to help clarify ownership and management of assets of this association as a vertically integrated business, perhaps applying the federated cooperative model to structure local cooperatives which control local assets such as the retail stores, and specifying the election of representatives to the federated umbrella organization, who manage use of production and wholesaling operations for the good of the local cooperatives and their membership.

Introductory Interviews, Moldova 9/1995 Page 19

Summary Report

Technical Assistance to

Air Budzhak CompanyChishinau, Moldova

September 15,18,21,1994

Michael Christenson, Management Consultant

Table of Contents

Executive Summary 3

Program Description / Scope of Services 4

Impact / Accomplishments 5

Significant Findings and Conclusions 6

List of Cooperating Individuals 9

Pace 2 Air Budzhak, Moldova 9/1995 ras

Cl

Executive Summary

This report deals with assistance provided to the jointly operated and closely held firms "PEGAS" and "AIR BUDZHAK" during the week following the first of two marketing seminars conducted during this three-week assignment. (Please refer to a separate report on the two seminars, and further, to a report summarizing introductory interviews conducted with technical assistance candidates.)

Mr. Theodore Zhook introduced himself to me after a class session, when I had passed out my business cards, which give my address and indicate an affiliation with a trading company in Minneapolis. He wondered whether I could assist his firm in locating an American manufacturer of micro-fine crop spraying equipment for his planes. He followed me back to the FSRP office, where the conversation broadened to include a discussion of their other activities. It became clear that these firms were intriguing candidates for FSRP assistance in locating an investment partner, and this became our central focus.

Mr. Zhook introduced me to Mr. Kamayev, who also has a civil aviation background, and is the founder of three related companies, all launched since 1989. He operates these companies with a number of partners (many former government members), including Mr. Zhook. They have aviation as their main focus. They have managed to obtain a 49 year lease on a former state-owned airport located in the Ceadyr-Lunga region of the ethnic area known as "Gagauz", and assigned ownership of this asset to a new firm "AIR BUDZHAK".

AIR BUDZHAK has conducted crop-spraying in this area. It owns five small planes of Russian design (three made in Poland) and has sprayed orchards in Moldova and large potato farms in the Ukraine. They would like to purchase micro-fine crop spraying equipment.

The related company, "VALAN" is an air cargo company, renting planes on an ak-hour basis to fly from Chishinau Airport to Africa, South America, and Russia. In the last case, they have purchased and flown fresh fruits and vegetables from Moldova to Russia, especially Siberia, and return with goods such as meat and fish.

They would like to install warehousing, particularly cold storeage facilities, at the airport. This would extend the season for produce into a time when they could command much higher prices in Russia.

The fundamentals of this operation, including profitability rates, seem sound. The FSRP office would like to pursue the completion of a business plan with this firm, provided its national and international dealings are clean. The company would like a minority equity partner and/or debt investment to help it realize these opportunities.

Air Budzhak, Moldova 9/1995 Page 3

Program Description / Scnpft of Services

The purpose of the Food Systems Restructuring Program (FSRP), funded by the U.S. Agency for International Development^ is to assist Moldovan private agribusinesses to become more competitive through improved economic performance, by facilitating linkages with sources of private and public finance and trade. The program focuses on medium and large enterprises. Activities are coordinated with other donor and funding organizations.

The program has four main components:

1. To identify potential partners and provide logistical support for U.S. and foreign businesses interested in trade and investment opportunities in Moldova.

2. To provide a resource center for Moldovan agribusinesses, to assist them in accessing sources of finance, especially the World Bank, the Western N.I.S. Enterprise Fund, the E.B.R.D. and private venture capital funds.

3. To work with private businesses and fanner associations to conduct a series of linked workshops and follow-up technical assistance in marketing, financial management and business planning. These activities are conducted throughout Moldova, country-wide.

4. To support Moldovan agribusiness through trade promotion activities in the U.S.A. and, to a lesser extent, to support trade efforts in traditional markets.

In addition, the program addresses specific policy and regulatory issues that are impediments to trade and investment opportunities by Moldovan agribusinesses and, when requested and appropriate, provides advice to government agencies on agribusiness policy matters.

Scope of Services

In a three-week assignment, to conduct two four-day marketing planning workshops, one in Chishinau and one in Beltsi, and to conduct technical assistance with individual Moldovan enterprises, including identifying businesses which are good candidates for foreign investment and beginning the process of helping them to write business plans.

Air Budzhak, Moldova 9/1995 Page 4

Impact / Accomplishments

1. The Food Systems Restructuring Program has a stated goal of improving economic performance of private firms in the agribusiness sector by identifying and assisting firms which have good potential for success. After extensive interviews, it appears this firm may be a good candidate.

The firms appear to have a healthy cash flow at present. They are organized with several activities, including flour and oil-seed milling, paint and varnish production, which are providers of an earnings stream which they hope to use to finance the higher-return air activities related to their airport.

The firms are already profitably involved in the lines of business fcrop spraying and air transport) which they hope to augment with investment hi the fix