Closed Compact Report: Moldova Compact | May 2017

Transition to High Value Agriculture (THVA) Project

  • $101,800,000Original Compact Project Amount
  • $129,431,667Total Disbursed

Estimated Benefits

Estimated Benefits for the Transition to High Value Agriculture Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At the time of signing 14.3 percent 112,000 $39,900,000
Updated in 2013 following updated costs and use of new economic model 7.4 percent

This figure comes from a working version of the THVA Project ERR that was not published.

Not yet available Not yet available
At compact closure -5.5 percent 112,000 $-41,900,000

Benefits were calculated by estimating the returns to high value crop production compared to historical production, combined with an assumption of how many farmers would switch to high value crop production over each year of the compact in the different regions. Estimated benefits correspond to $112.5 million of project funds, where cost-benefit analysis was conducted. $17.7 million of the THVA budget was devoted to the Access to Agricultural Finance project, the ERR for which could not be carried out due to lack of data.

Project Description

The objectives of the Transition to High Value Agriculture (THVA) Project were to enable Moldova to benefit from its natural comparative advantage in agriculture by: (i) increasing rural incomes by stimulating growth in high-value-added agriculture; and (ii) catalyzing future investment in high-value agriculture production through the establishment of a successful business model and conducive institutional and policy environment for irrigated agriculture.

The THVA Project consisted of four reinforcing and integrated activities that, when implemented together, targeted what were recognized by both donors and domestic stakeholders to be the fundamental constraints to development in the sector: a lack of reliable access to water, limited availability of financing, poor access to markets and technologies, and limited expertise.

The four THVA Project activities included:

  • The Centralized Irrigation System Rehabilitation Activity (CISRA) restored and upgraded selected centralized irrigation systems by replacing or reconstructing pumping stations and other irrigation infrastructure, including pipe networks and reservoirs, to improve access to irrigation on agricultural land.
  • The Irrigation System Reform Activity supported the goal of improving access to irrigation through technical assistance and reform. It consisted of two Sub-Activities:
    • the Irrigation Management Transfer Sub-Activity provided technical and training assistance to farmers to ensure the efficient management of the rehabilitated centralized irrigation systems by its users through Water Users Associations (WUAs);
    • the River Basin Management Sub-Activity helped enhance the overall management of water resources through policy reform, basin-level management and scenario planning, and improved water monitoring.
  • The Access to Agricultural Finance (AAF) Activity aimed to increase competitiveness and profitability for farmers and post-harvest investors by enabling investments through the provision of medium- and long-term financing to increase production, cost-effectively sort and package produce, extend the production and marketing seasons, and bring produce to market.
  • The Growing High Value Agriculture Sales (GHS) Activity, which was co-financed and managed by USAID, provided technical assistance, training, demonstration activities, and consulting and market intelligence services through investments designed to:
    • develop and expand market opportunities;
    • upgrade production techniques;
    • modernize the value chain system;
    • invest in higher quality phytosanitary equipment to meet pest and pathogen standards for export to international markets; and
    • support the transition to high-value agriculture and the use of irrigation in the centralized irrigation systems areas

At the end of the compact, 10 irrigation systems covering more than 11,500 hectares were rebuilt and upgraded and their management was transferred to WUAs created under the compact in those target areas. 1 Additionally, the AAF Activity disbursed more than $11.7 million in loans to 62 borrowers and committed $800,000 in equipment leases during the compact. The AAF Activity continued to commit additional leases even after compact closure amounting to a total of $4.6 million in leases benefiting 80 farmers and enterprises at the end of 2015. Finally, the GHS Activity trained more than 6,000 farmers and assisted more than 300 enterprises to increase produce sales in new global markets. During the compact, three additional WUAs were formed in areas outside of MCC’s intervention established under the new Water User Association law requirements created under the compact. 2 Signing Management Transfer Agreements is the critical next step that will allow these WUAs to assume operation and management of the irrigation infrastructure, putting the use and regulation of irrigation water in the hands of the farmers themselves.

Evaluation Findings

Evaluation Plans: The evaluation of the THVA Project will consist of two complementary components: an impact evaluation and a performance evaluation, which will determine the extent to which activities met stated objectives and improved the productivity and profitability of farm operations in the rehabilitated centralized irrigation systems and nearby extension areas. The evaluation will also assess the extent to which the THVA Project acted as a model to catalyze additional investments in HVA production.

Status of the evaluation:

Component Status
Baseline Baseline report was completed in 2015. Report and questionnaires are public.
Midline Interim results expected in 2019
Endline Final results expected in 2022

Key performance indicators and outputs at compact end date

Key performance indicators and outputs at compact end date
Activity/Outcome Key Performance Indicator Baseline End of Compact Target Quarter 1 through Quarter 20 Actuals (as of ) Percent Compact Target Satisfied (as of )
Access to Agricultural Finance (AAF) Activity Loan borrower (female) 0 No Target 7 No Target
Loan borrowers 0 75 62 83%
Loans past due (Percentage) 0 5 2.6 Satisfied
New High Value Agriculture infrastructure in place (Metric Tons) 0 10,500 20,705 197%
Value of agricultural and rural loans (US Dollars) 0 14,900,000 11,702,981 79%
Growing HVA Sales (GHS) Activity Enterprises assisted 0 120 334 278%
Enterprises assisted (female) 0 No Target 57 No Target
Enterprises that have applied improved techniques 860 75 77 103%
Farmers trained 673 4,300 6,569 153%
Farmers trained (female) 0 No Target 2,333 No Target
Farmers who have applied improved practices as a result of training 0 2,800 2,452 88%
The Central Phytosanitary Lab is certified Date Aug-14 Pending Completed in Closure Period
Value of sales facilitated (US Dollars) 0 31,500,000 29,954,859 95%
Irrigation Sector Reform Activity (ISRA) Management Transfer Agreements signed 0 11 10 91%
Revised Legal Water Management Framework Date Aug-13 Nov-13 Complete
Water User Associations with active and representative governance 0 11 10 91%
Rehabilitaiton of Centralized Irrigation System Activity (CISRA) Centralized irrigation system rehabilitated 0 11 10 91%
Hectares under improved or new irrigation 0 15,500 11,526 74%

Explanation of Results: At compact signing, the ERR estimate was 14.3%. At the end of the compact’s third year, this was adjusted down to 7.4% after estimated costs were updated and the methodology for estimating the benefits were also updated. Due to two key reasons discussed below, the calculated ERR fell to negative 5.5% at compact closure.

When calculating the estimated economic rate of return, MCC and the Government of Moldova expected that farmers would transition to the new technology required to take advantage of new irrigation systems at a certain rate. By the end of the compact, MCC reduced these transition rates after key assumptions were revised with new information. A survey of farmers in early 2015 showed that farmers were planning to use the new irrigation to cultivate high value agriculture crops on approximately half of the land in the improved irrigation systems. The original ERR assumed 45 percent of land would be irrigated at the time of project completion, with the remaining farmers switching to HVA crops over eight years.

MCC is reviewing whether the original assumptions sufficiently incorporated constraints to adoption, such as availability of labor in local markets (high-value agriculture cultivation requires more labor) or farmers’ existing access to machinery, storage and market contacts focused on non-high value agriculture crops. A further factor under review is whether farmers may have been more risk-averse and reluctant to move into a new market without support that could not be provided by the project because the irrigation rehabilitation was not completed until the compact’s final year. More information on the results of the project and reason for slow transition rates will be available following the completion of the impact evaluation.

The ERR was also affected by a sharp depreciation of Moldova’s currency that occurred toward the end of the compact, leading to increased costs associated with importing and purchasing agricultural equipment necessary for cultivating high-value crops. The Moldovan leu depreciated by approximately 57 percent during the compact term, including a drop of 37 percent in the final year of the compact. 3

It is important to note that while the final closeout ERR for this particular project was lower than originally estimated, a successful outcome of the THVA Project was the implementation of some of the legal reforms necessary to transform Moldova’s agricultural sector.  For example, the new WUA law created an enabling environment for Moldovans who wanted to transform the agricultural economy. There is evidence that farmers are interested in replicating the WUA model, and in attracting additional investments to rehabilitate Moldova’s remaining irrigation systems. For instance, an additional four water users associations were formed in Moldova in locations where the compact did not rehabilitate irrigation systems. The creation of the new WUAs demonstrates to potential investors and donors a demand for additional investment in other irrigation systems that could be managed and sustained by local farmers after rehabilitation. To further support sustainability of the WUAs created under the compact and attract additional donor support for irrigated agriculture in the country, the Government of Moldova created the Sustainable Development Account-Moldova (SDAM) at compact closure (more details below). Additional reporting in the coming years will show how much impact the legal reforms required by the compact have had and how successful the WUAs have been at managing the irrigation systems.

The THVA project originally included plans to partially rehabilitate up to 11 centralized irrigation systems and form and train 11 WUAs to take over operation of those systems. Original targets were for 11 centralized irrigation systems rehabilitated, 11 WUAs with active and representative governance, and 11 Management Transfer Agreements signed. However, a 2012 midstream correction (see below) revealed higher costs, and the Government of Moldova and MCC reduced the project scope with only 10 systems fully rehabilitated with compact funding. Farmers in the 11th system, located in Cahul, formed a Water User Association independently and were trained alongside the other WUAs. However, because their irrigation system was not improved under the project, management of the system was not formally transferred to the WUA.

  • 1. An 11th WUA was established and received training; however, its irrigation system was not rehabilitated.
  • 2. The Dajida-Prim WUA in Gura Bicului village registered in December 2013 and signed a Management Transfer Agreement (MTA) in June 2014. The Apele Prutului WUA in Bogdanesti village and Apele Nordului WUA in Corestauti village both registered on April 3, 2013. Following the close of the compact, an additional WUA formed in Costesti village on February 18, 2016. As of February 2017, the WUAs in Bogdanesti, Corestauti, and Costesti were coordinating with authorities to sign Management Transfer Agreements
  • 3. The currency devaluation affected the THVA Project disproportionately because it relied heavily on imported equipment and construction was still ongoing at the time of devaluation. The Road Project involved less imported equipment and was largely complete by the time the devaluation occurred.